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03 January '14 | Gopikrishna Aravindan

Is Mobile NFC going to revolutionize payment, loyalty and travel industries?

Posted on: 03 October '11

During the early part of this year, when Borders Group filed for bankruptcy and closed most of their stores, I felt really bad. It seemed like an era was coming to an end. The movie “You’ve Got Mail” depicts the impact to the ‘mom and pop’ corner book stores due to the emergence of big retail chains. Now we are looking at how even the big retail chains can feel the heat due to a technological change which completely alters the business model, like what Amazon has achieved.

I hope the Barnes and Noble bookstore chain survives with its digital offerings. During the mid-90s, when I had a lot of free time, I used to visit B&N at Stevens Creek Boulevard, San Jose, every evening and read lots of useful books, for free, by just sitting in their in-house coffee house sipping wonderful coffee.

In this digital era, we are seeing a lot of new players emerging, and old players, who are not able to adapt to the changes, are struggling. For e.g. the mobile phone is a threat to a lot of existing players manufacturing alarm clocks (is anybody still using them?), music players, cameras, etc.

Now that mobile phone handsets are enabled with NFC (Near Field Communications) technology, will it change the way we do credit/debit card transactions? Will it change the way we redeem loyalty points? Will it change the way we travel and clear the multiple gates at airports?

I would love to see those changes. It will certainly reduce my wallet size. With the number of cards that I am carrying – credit/debit cards and loyalty cards – my wallet is giving a “Costanza wallet” effect. Apart from that, it makes life easier. Let us look at the following cycle for an air traveler:

  • Checks in at the airport and gets the baggage tag in the mobile and gets the reward points loaded
  • Gets the boarding pass bar code equivalent loaded in the mobile
  • Clears security gate by waving the mobile
  • Pays for onboard snacks/duty free products by waving the mobile
  • On landing, takes a rental car – the car key is loaded on the mobile
  • Opens the car with the mobile
  • Checks into the hotel waving the mobile and redeems the reward points
  • Gets the hotel key loaded on the mobile and opens the hotel room

Basically the applications are endless. Smart phones are getting enabled with NFC technology, be it from Apple, Samsung or Motorola. The smart phone market size is also on the rise. With Google wallet around the corner and with Google having bought Motorola’s mobility division, the NFC enabled smart phones with Android platform will certainly have a good push.

Now it all depends on market adoption. The cost lies in changing so many points of sale with readers compatible with NFC technology. Also, the number of smart phones enabled with NFC technology and the end users doing sufficient transactions on mobiles should increase. It might take a couple of years for all of the above to happen.

NFC is a two way communicating technology between the NFC phone and the NFC reader. For example, after receiving the card information, the reader can ask for the PIN that goes along with it. As usual, with any new technology, there are concerns on the security aspects. For example, what happens if the cell phone is lost? The same problem is present on a plastic credit/debit card. At least, in the NFC enabled smart phones, you need to provide a PIN to access the card details.

It is good to see that Google is trying to create a market through vertical integration of mobile phone manufacturing and distribution, through its Motorola acquisition, and providing a Google wallet product with Google prepaid cards as well. We need a market creator here.

Mobile phones are moving towards a convergence of digital consumption in providing not only mobile telephone facility but also providing entertainment in terms of games, music, videos, utilities like alarm clock, emails, internet surfing, sms, etc. Now it is going to change the way we make payments as well, replacing the plastic cards. Also it might be good to see easier acquisition and redemption of loyalty points and the way the hotel/car industries operate.

The next development in future could be – you make payments through mobiles and the transactions are automatically taken to a personal/corporate accounting software for expense claim accounting, etc.

The wide spread adoption maybe just a couple of years away but it might be worth the wait.

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  • Rajendran Durairaj

    very interesting write-up. Thanks. Most of these changes are coming and will make life easier. As you rightly said, people will be reluctant to trust technology with their security and money. We still have people using cash and not trusting bank cards.Death of book stores like “Borders” – that supplemented libraries – is an irony. B&N will be next.

  • Prasanna S

    This seem to be the way to go!
    We have to get the mobiles secure and as efficient as possible, not run of charge, easy to get an replacement for if lost ….
    and then this might be possible. Enabling the infrastructure first is essential!

  • Anand S

    While we normally get very excited with technology, i do not think that it is the real driver. I think ‘need’ is the driver
    especially with the ’emerging markets’. To explain, developed countries seem to take the route of ‘hey there is this really
    cool technology available / (most often) which i want to use to create a new revenue stream’ and then develop solutions
    or create a market for that.

    In emerging markets, its the opposite. There is an acute need for something (eg. unpaid electricity bills crippling companies)
    and then technology (affordable) which is used to solve the problem.

    I feel that taking the second approach is what will see immediate returns (specially in these days).

    3 things that stuck me when i read your blog

    a) Somehow, the relevance of B&N and Amazon to the whole article – i could not connect the dots

    b) The NFC : Not sure if we really want newer handsets with this function. Maybe something simpler.
    eg. mPesa in the african markets. Today most of the people are able to “pay” small amounts or transfer small amounts
    using any (old) existing handset via a simple SMS. To me, this instantly creates a huge market as seen in africa

    c) I came across ‘prepaid electricity meters’ being implemented in some african countries. Nothing fancy (like automated
    wireless meters whose reading can be read wirelessly / using a sim card etc). These meters are cheap but with only one
    change. Input a code and it will enable usage for a prepaid / preset amount. Once exhausted, you need to get a recharge
    coupon (can be obtained using mPESA!!) and then key in the new code…

    We are in “exciting” times and i am truly “loving it”….just that we should now enter the stage of using (available) technology
    in innovative and simple ways to solve existential problems..

    Just some thoughts …

  • Anil Agarwal

    Fully agree with your views and looking forward to NFT taking off in India. PM’s financial inclusion task force is exploring how to extend banking (and financial) facilities to millions of unbanked Indians where at 70% cell-phone penetration it can extend the reach enormously. Obviously other enablers like banking correspondents, UID will play a greater role initially.

  • Jas Sivakumar J

    Hi Anand,

    First of all, thanks a lot for the detailed feedback. Your comments are more informative as well.

    I agree that the connectivity between Borders crash and NFC is not coming out well in my blog. The point I was making was, if there is a technology/business model change, even established players might run out of business, if they do not foresee and take appropriate steps. NFC might be one such, where the plastic credit/debit cards might vanish in due course (if the adoption picks up) and the companies that manufacture these credit cards with magnetic strip/smart card chips etc, will have a major impact. Basically, not only the banks but the companies which are into manufacturing plastic cards will also have an impact. That was the point I was driving at by taking examples of Borders, B&N, alarm clock manufacturers etc.
    Your points (b) and (c) are very informative.
    The advantage with NFC is that, it is being built in each of the smart phones and so the cost is bundled into the phone cost itself. For RFID adoption, the major impediment was about the RFID active/passive tags cost, rather than the reader cost. Whereas the tag cost problem does not exist here since it is bundled into the smartphone itself.
    Thanks for your inputs,

  • Jas Sivakumar J

    Thanks, Anil. Yes, Micro Finance might be another possibility.