Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Mobile near field communication is a hot topic today, with a variety of players gearing up to enter NFC payment, loyalty and couponing, and advertising markets. Mobile NFC widens the possibilities of NFC considerably, as it enables the mobile phone to not only read data, but also scan and share information between two NFC devices. Also, mobile NFC can manage and modify multiple applications at any time.
In order to clarify the reality behind the hype, Arthur D. Little conducted a global NFC survey, comprising 70 interviews of key market players, in order to determine the potential winners and losers in mobile NFC, key success factors and expected time-to-market. The survey resulted in four key parameters that should be carefully considered by market players.
1. NFC offers major potential, although with high risk and uncertainty
Arthur D. Little believes that the hype around NFC is justified given the players’ sincerity and the ecosystem’s readiness. There are currently more than 200 NFC initiatives ongoing globally and more than ten solutions have been commercially launched. Most of the critical standards are set, more than 100 NFC-enabled handsets are available and upgrades of terminal infrastructure are on their way in many markets.
Arthur D. Little believes that NFC will have a major impact on how we shop by revolutionizing our shopping experiences and linking the physical with the digital world in real time. NFC also will lead to further industry convergence by forcing players to collaborate and will lead to fundamental changes in the payment industry.
The market’s immaturity and the complexity of the ecosystem, however, carries a significant market risk and results in a high level of uncertainty when defining the future market size of NFC.
2. NFC is much more than payment
NFC is essentially a faster, more convenient and also secure payment experience. Payment remains the key enabler of the NFC ecosystem, as it is the single most important service in driving scale and user adoption. Also, leveraging the payment data combined with targeted couponing, advertising or geo-location-based data is justification for the hype around NFC.
However, limiting NFC to payments results in challenges in developing an attractive business case. In order to increase the revenue pie, NFC needs to be understood in a broader sense. The value and profitability of targeted couponing and advertising will quickly outgrow the value of the payment markets.
3. NFC requires an ecosystem to be built
The NFC ecosystem today is enormously crowded. Individual stakeholder approaches and strategies differ widely between and within stakeholder groups and by country. Arthur D. Little has identified four key dimensions within the scope of NFC services:
–Payment: Lacks activity from outsiders to date and real innovation is low.
–NFC payment adjacent: A hot spot with great opportunities, which consequently also has the highest share of outsiders entering the market.
–Beyond NFC: Currently undeveloped, but innovations in the areas of health care, business applications and smart city concepts are becoming increasingly visible.
–Enabling: The enabling of all prerequisites for NFC to function (standards and processes, software and hardware), including the role of enabling other players to be integrated in a mobile wallet. Activities are particularly high, as the enabler of the ecosystem has the opportunity to take a gatekeeper role.
4. Positions need to be taken soon, even though financial returns are three to five years away.
NFC market readiness is one of the most discussed topics in the field and also one of the areas of the biggest misconceptions. There are several clarifications to be made:
–Terminals: The terminal issue will be resolved in the short term in most markets, since a large share of terminals are already NFC-enabled and most shipments are limited exclusively to NFC-enabled terminals.
–Handsets: NFC-enabled handsets will remain a challenge in the short term, but all manufacturers, except Apple, have committed to NFC.
–Merchants: Merchants’ interest is high, as long as there is no increase in transaction fees or need for massive terminal integration.
–Consumers: We strongly believe consumers will adopt as soon as there is a comprehensive solution as we put more weight on consumers’ trust in and dependence on mobile phones than on market surveys.
In our survey, we asked global experts when they expect NFC will represent at least 20% of electronic payment volume. Thirty percent of respondents answered by 2015, 58% between 2016 and 2018, and 12% after 2018. Although significant NFC development may take several years, 20% of total electronic payment volume still currently represents billions of dollars. Adoption will significantly accelerate once 20% of total payment transaction volume is reached.
Tackling NFC
When tackling NFC, technology should not be the primary concern. Arthur D. Little believes that the customer should be the focus of all thinking (whether as part of a business-to-business or business-to-consumer relationship), and technology should follow.
Solutions should be comprehensive. The nature of NFC limits its scope naturally to proximity payments. However, we believe there is a strong rationale in thinking beyond pure proximity payments and offering a multitude of use cases.
In addition to being convenient and safe with a positive business case, according to our survey NFC solutions also need collaboration, standards, interoperability and aligned communication. This indicates that NFC is not a one-player market, but this does not mean that one player cannot drive the ecosystem.
The future of mobile NFC is far from clear. There are many obstacles on the road to making the NFC ecosystem a reality. Nonetheless, expectations are set and activity is tremendously high. Nonetheless the “elephant” – the question of how to make a positive business case – is still in the room, but we believe it will be overcome by entrepreneurship, innovation and consumers’ demand for mobile services.
Nicolai Schättgen is a Manager in the Vienna office of Arthur D. Little and member of the Telecommunication, Information, Media & Electronics Practice. Karim Taga is a Partner in the Vienna office of Arthur D. Little and the Global Head of Arthur D. Little’s Telecommunication, Information, Media & Electronics Practice.
