Near field communications (NFC) for mobile payments lacks a clear advantage over traditional forms of payment, according to the CEO of mHITs, an Australian SMS-based mobile payments service.
“We’ve seen NFC hang around like a bad smell for a long time,” mHITs CEO Harold Dimpel told Computerworld Australia. Dimpel has been observing the technology for 10 years in the payments space, but has chosen SMS-based payments for his company.
“There’s been so many attempts to try and stand it up ... but very few people get what NFC actually does,” he said.
Dimpel is not the only one with doubts about NFC success. PayPal president David Marcus recently predicted that the payment technology will “fail to gain mass adoption” and the debate over NFC’s suitability for payments “will slowly die in 2013”.
But while some predict doom for NFC, the technology still has prominent supporters. The major banks are continuing trials and Visa is negotiating with telcos for payment apps.
One advantage of NFC over traditional card payments is that additional customer information can be exchanged in the transaction, Dimpel said.
However, a major disadvantage is that NFC payments have to happen at the point of sale, with a physical tap of the device against a receiver, he said. “It’s useless for doing ... a remote payment.”
“You know what I reckon the big joke is?” asked Dimpel. “What is in it for the consumer? I’m not convinced there’s any advantage in me somehow linking my card to a phone and then using the phone to scan something at the point of purchase. How is that better than me just sticking my card into the point-of-sale terminal and entering my PIN?
“Is it solving that much of a big problem that I’ll switch my behaviour?”
Dimpel believes that cloud payments like what PayPal is doing are the more promising technology for mobile payments, he said. They have the same advantage as NFC of exchanging more information during a transaction, but also allow remote transactions, he said.
A big problem for NFC is that it requires a complicated set of relationships among different types of businesses to be effective, Dimpel said.
To work, NFC payments require not only the NFC chip but someone to manage a secure element that authenticates the transaction. On mobile, it’s not clear who should manage that element, he said.
“For a credit card with NFC, like [Visa] payWave, it’s pretty clear that it’s the bank that issued the card,” he said. But on a phone, it’s not clear if the manager of the secure element should be the bank, the phone carrier or the handset manufacturer, he said.
“It’s going to be a problem, because nobody can seem to agree on an architecture,” he said. “What it does require is collaboration between these stakeholders.”
There have been some partnerships to make NFC a reality. For example, Vodafone, Visa and ANZ Bank recently announced an NFC payment app. But Dimpel said such partnerships can create walled gardens limiting consumer choice of who they want to do business with.
“It goes against what the consumer wants, because the consumer wants to bring their bank to their phone,” he said. “If they want to use that service, does that mean they have to switch banks?” The carriers and banks want to hold onto customers and so their incentive is to lock them in, he said.
Another problem may be that NFC requires a smartphone with an NFC chip, Dimpel said. While many high-end Android and Windows phones have NFC, the Apple iPhone 5 does not. By virtue of its using SMS, the mHITs service works even on basic feature phones, he noted.
However, others say it’s only a matter of time before NFC takes off.
“NFC is quickly becoming a standard for all smartphones and the technology can be used for many applications, not just payments,” Telsyte analyst Rodney Gedda said recently. “NFC will gain mass adoption the same way Bluetooth and Wi-Fi gained mass adoption by being integrated into devices people carry with them all the time.”
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