Will the NFC Wallet be the Winner for Custom Information and Mobile Payments?

Google has put its considerable weight behind the concept of an NFC (Near Field Communication) wallet.  (That means a system that lets you use your SmartPhone to receive customized deals and pay for merchandise by tapping your device to a special reader.)  Everyone I’ve interviewed stresses that while it is a payment system, that’s not the point.  The real importance is that it will know “everything” about each user and provide opt-in information about interesting merchandise and discounts based on the user’s location and preferences.  Users will also be able to tap their “wallet” (an enabled SmartPhone) on a sign as they enter a store or mall, and see special deals available now.

It’s an interesting idea based on the facts that:

• Nearly everyone that a merchant would want to connect with is walking around with a mobile phone, and phone manufacturers are expected to include an NFC chip in their new smart phones.  Some have already started and it’s expected to be nearly universal within five years.
• Many large merchants have already agreed to participate (which means putting NFC chip readers throughout their stores and creating personalized deals – Google intends to help with that).  Google has signed up 16 chains, including Bloomingdale’s Macy’s and Radio Shack.  Of course, they have to be enabled with the SingleTap technology and put together their plans for offering “deals.”
• MasterCard (but not Visa, which has a competing project under way) has agreed to be the facilitating processor for verification and payments.  CitiBank and First Data Corp. will also be involved.  A carrier is not required for the scheme to work, but Sprint is part of the Google initiative.

Google has emphasized that the initiative is open to anyone – that means, of course, many merchants, but also more banks and carriers and more SmartPhone platforms than Google’s Androids.  Google has not commented on enabling BlackBerry or iPhone, but that could be in the works.  One source we spoke to expects Apple to have an initiative in this category, but possibly a separate one.

This is far from a sure thing.  First of all, this is a complicated idea and everything has to be in place at the same time:

1. Consumers have to be educated and participate by signing up, providing their information, and looking at the deals and sometimes opting in.  Merchants will want to know what that participation rate will be.
2. Merchants in numbers that support continuing consumer interest must sign up (they need to do this is numbers because different customers have different shopping patterns.  I might want deals from Neiman Marcus, Saks, and Target, while someone else might be interested in Target, Walmart, and Shop-Rite.
3.  The system need to support a payment agent customers already use and customers must perceive it as secure and easy.  In the test phase of the Google NFC Wallet, which is just getting started now, customers will pay via their MasterCard account.
4. It needs to eventually work across all the major SmartPhones – merchants are not likely to be enthusiastic about supporting multiple systems for different SmartPhone platforms and it would be confusing to be out and about with a friend or partner and get different offerings based on which SmartPhone you happen to use.

We’ve had earlier experiments with some kind of wave or tap and go payment system.  In Europe and Japan these systems are popular and well-established.  So far, in the U.S., none of them have caught on.   This may be the problem of getting everything together in one time and place or it may be that in the U.S. there are so many options for getting customized deals (Groupon, Living Social, etc.) that it’s hard to get customers’ attention.

Or this may be the magical moment when everything comes together and we change the way we shop.

One expert we interviewed, Mick Mullagh of VIVOTech (which makes NFC readers, in addition to being involved in the whole initiative) points out that as with all new technology, this is a rollout over time.  He expects to see 20 million phones enabled in the next 18-24 months.  There are already 600,000 NFC readers out there.  You may have come across one in a New York City taxi cab or at CVS.  Merchants, different geographies, and customers all have to come to the party.  Mullagh is pretty sure that the value proposition for both merchants and customers is the customized offer.  As I said to him, “I’ll be looking to try it out” – both on the road in New York, San Francisco, and Portland, where it’s starting, and in the suburbs of Philadelphia when it gets here.