South African banks and retailers are likely to be slow to adopt near-field communications (NFC) technology for mobile payments due to the high costs of installing point-of-sale terminals and other enabling infrastructure, according to Tim Walter, executive head of marketing at Nashua Mobile.
Walter believes that there is little appetite among institutions to drive adoption of yet another new point-of-sale payment technology just as the end of their protracted rollout of the EMV credit card standard is in sight.
NFC is a short-range wireless technology that enables people to use their mobile phone as a wallet. The technology has proven itself to be viable in trialing countries like the US, while South African banks, including Absa have also begun trials of its own. But, as yet, there are not enough NFC compatible handsets in the market, nor is there a compelling commercial model for the rollout of the technology in South Africa, opines Walter.
“Most of the major handset manufacturers are bringing NFC to market in the latest models of their mid to high-end smartphones,” Walter said. “Yet we are still a long way off from the critical mass that would really justify massive investment in the technology by banks and retailers.”
The marketing lead notes that, despite the many experiments with NFC as a payment technology in the international market, it still is an immature technology, far from the mainstream. According to research by Berg Insight, global sales of handsets with NFC increased ten-fold in 2011 to 30 million units. Shipments are forecast to touch 700 million units in 2016.
“With just 30 million NFC handsets sold in 2011, these devices represent a tiny fragment of the overall mobile phone market. The growth is exponential, but even in advanced markets, NFC looks like it could be two to three years away from mainstream adoption,” Walter said.
In South Africa, it is the capital-intensive process of rolling out point-of-sales terminals by stores, hotels, restaurants, services firms and other merchants that will be the big barrier to adoption, believes Walter. It took a good 10 years from when banks first started talking about EMV until it become common in South African shops – and even now the rollout isn’t 100% complete, Nashua Mobile argued.
“Retailers and banks will need to see some clearly defined benefits in security, convenience and cost-reduction before they adopt NFC in a big way. We will need to see big retail groups, mobile operators and banks cooperate closely to nurture an NFC ecosystem based on a sound business model that works for all of them – and that could take some time,” Walter said.
However, Nashua points out that it doesn’t mean that applications for NFC-enabled phones won’t come into the market in the next two to three years. The technology can be used for applications such as paring devices to establish Bluetooth or WLAN connections, electronic ticketing, loyalty programs and coupons, parking payment, buying goods for vending machines, and more.
How popular NFC will become for such applications, depends on market penetration of enabled devices and the benefits companies see in adopting it. But in the meantime, expect the banks to experiment and investigate NFC very thoroughly during 2012, Nashua Mobile concludes.