Efforts to push mobile payments using NFC-ready smartphones have gone through a series of fits and starts in the past three years in the U.S., but have had little affect on how Americans make purchases.
Now, a powerful group of retailers including Best Buy and 7-Eleven plans to roll out mobile payments in 2014 by scanning barcodes from smartphones. That move sets up a potential battle with backers of NFC (Near Field Comunication), including a joint venture of three wireless carriers called Isis, and Google Wallet.
The merchant venture, called Merchant Customer Exchange (MCX), hasn't divulged specific plans. But in December, it announced that ExxonMobil had joined its ranks, bringing MCX membership to about 70 brands with 110,000 retail locations that process more than $1 trillion in payments a year. Other members include Walmart, Sears, Kohl's, Lowe's, Dunkin' Donuts and other national retailers.
Adding to the turf battle now building over mobile payments, a few national retailers who are MCX members have begun turning off the ability of recently-upgraded payment terminals to recognize NFC payments or read smart credit and debit cards embedded with a chip, according to several industry analysts and Isis CTO Scott Mulloy.
Isis is a joint venture of Verizon Wireless, AT&T and T-Mobile US, which launched the Isis mobile payment network national in November 2013.
"A handful of retailers are moving counter to the broader industry movement towards more secure payment technologies," Mulloy charged. "This affects millions of contactless [smartcards] already in circulation as well as new mobile wallet innovations. It's a massive step backwards.
"When a merchant with thousands or even hundreds of locations turns off contactless [NFC payments] and chooses a less secure option, it's significant for consumers and the broader payments industry, as we have seen with recent high profile data breaches" at Target and Neiman Marcus, he added via email.
Without the smart card and mobile wallet NFC capability, consumers are forced to use magnetic stripe credit and debit cards, which are widely considered insecure, Mulloy noted.
Isis, which conducts its own tests of various point-of-sale terminals, estimates there are about 1 million sales terminals deployed in stores that support both EMV (Europay MasterCard Visa) smartcards and NFC smartphone payments. That's up to to 15% of all terminals in use. Both EMV smart cards and NFC smartphones rely upon the same communications protocol, although payments are certified differently by the two technologies.
Several industry analysts said they had heard that some MCX members such as Best Buy and 7-Eleven had installed NFC-ready payment terminals in the past two years, but had recently turned off that capability. One reason often cited is to avoid high fees charged by banks and credit card processors, while other analysts said the retailers are shutting them down to avoid operational costs.
"I imagine these retailers are turning off the technology because there aren't any shoppers with NFC and smart card payment capability walking into the store and it costs more to keep those features turned on," said Avivah Litan, an analyst at Gartner.
Analyst Julie Conroy at the Aite Group added, "There's the ongoing battle between merchants and [banks and credit networks] over the fair cost" of using smartcards and mobile payments. Several years ago, merchants and banks predicted that merchants would buy payment terminals with the dual ability to support EMV smartcards and mobile payments with NFC, under the theory that customers would move from smart cards to mobile NFC payments eventually.
"People thought [smartcards] would take off, but it's hard to change consumer behavior and there's no incentive to change, so it hasn't taken off," Conroy said.
Another factor affecting the slow smartcard rollout in the U.S. has been the estimated $10 billion to $11 billion in costs faced by banks to provide consumers with smart cards, Conroy said in a video interview last year.
At a Best Buy store located in Harrisonburg, Va., a clerk confirmed that the ability to make NFC mobile payments and related smart card payments at its point-of-sale terminals had been turned off after a directive from the corporate level. A spokeswoman for Best Buy declined to comment.
At one large 7-Eleven store also in the area, a clerk said some of the mobile payment point-of-sale technology had been removed from some checkout counters. Another 7-Eleven store, however, was promoting its mobile app with a notice where customers pay.
A corporate spokeswoman said the 7-Eleven app does not currently support mobile payments, but said the app -- available for iOS, Android and Windows Phone -- does allow customers to redeem coupons and offers by using a barcode on the app that is read by a barcode scanner at the checkout stand.
"We hope to include this [payment] function in the future," said the spokeswoman, Margaret Chabris.
Starbucks, which is not a member of MCX, has successfully used barcode scanning with its Starbucks Card stored on customers' smartphones for three years. Analysts last year said that up to 10% of Starbucks' revenues are earned through mobile payments.
MCX did not respond to a request for comment on its plans or steps taken by member retailers with payment terminals.
Jordan McKee, an analyst at Yankee Group, said MCX plans to use barcode scanning for the "forseeable future,"adding that MCX "has a lot of potential as a disruptor. It's going to be big."
McKee said MCX plans to sidestep any requirement that customers load up a Visa or MasterCard card to a smartphone, and will instead require them to make purchases with phones and barcodes directly from their bank accounts -- a significant departure.
MCX's plans for barcode scanning by dozens of large retailers leave Isis in a "difficult position," McKee added.
Another factor that's expected to hurt Isis was Google's adoption of Host Card Emulation technology in Android 4.4 (KitKat) last year, McKee said.
Google's approach with HCE means that mobile payment security can be kept in the cloud, while Isis believes the secure element is best kept on a chip in the phone. Mulloy at Isis said both technologies can co-exist. Both HCE in KitKat and hardware-based security with Isis "are complimentary solutions," he said.
But McKee said while HCE will increase use of NFC, it's "a very bad thing for Isis, and just proves that operators are not a necessary component for a consumer wallet."
Overall, McKee said the situation for Isis is growing more dire. "It seems like they've run out their leash as far as they can, and they need something to happen or they have to re-evaluate," he said. Isis won't even say how many smartphone owners have loaded the Isis app, he said.
Meanwhile, Isis said it is encouraged by the support for Isis on 60 smartphones sold by AT&T, T-Mobile and Verizon. The Galaxy S5 announced in February is also Isis-ready. Isis users are tapping to pay up to seven times a month, Isis said.
While McKee expects Google's HCE innovation to lead to an NFC renaissance in 2014, the general assessment of NFC for mobile payments is not promising. In 2013, NFC transactions in the U.S. reached just $188 million, a "minimal" volume, according to Yankee Group.
"Generally, NFC payments are performing well below expectations in the U.S., especially given [that] nearly every major non-Apple smartphone supports NFC," said analyst Patrick Moorhead, of Moor Insight & Strategy. "The biggest issue is the [inconsistency] in the experience. Unlike credit and debit cards that are accepted everywhere, NFC payments are only available at a small portion of overall stores and the checkout experience varies from store to store. This is a killer for consumers."
Jack Gold, an analyst at J. Gold Associates, said Apple's lack of NFC support has had a major impact on slow NFC smartphone use. "NFC is barely having a dent in sales in the U.S.," he said. "I'd venture to say that if you asked the average consumer about NFC they wouldn't even know what it is."
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is firstname.lastname@example.org.
Read more about mobile payments in Computerworld's Mobile Payments Topic Center.
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