The thin edge of the mobile money wedge: NFC

posted May 11th, 2010 in Business

This year at the CTIA Wireless 2010 conference in Las Vegas I attended a seminar on mobile money. The overarching theme of the seminar was the desire to break the payment duopoly of VISA and MasterCard and the technology required to facilitate this. A consensus emerged that micro-payment was the thin edge of the wedge for breaking the duopoly and Near Field Communication (NFC) is the champion technology to deliver this.

Micro-payment is generally understood as a transaction under $10 that is primarily used for “convenience purchases”. Ten-dollars is the magic number because it marks the threshold below which consumers will make spontaneous purchases and because it is not risky for underwriting purposes. In addition, people generally do not begrudge paying a small fee for the convenience. For example, most people faced with a situation where they didn’t have change to plug a parking meter would be willing to pay a $0.30 transaction fee for $3.00 worth of parking rather than risk getting a $45.00 ticket. The best example – and the proverbial `killer app’ for micro-payment – is transportation ticketing. It’s worth mentioning that both the parking industry and transit authorities recognize these opportunities and are working to capitalize on them.

The mechanism used to deliver micro-payment capabilities to the end users is contact-less technology integrated into a mobile phone – specifically, Near Field Communication enabled smart phones. NFC has been the next-big-thing in this industry for years; however, the consensus at the mobile money seminars was that the technology would gain traction in the late 2010s. This is, in no small part, attributed to a commitment by VIVOtech and Nokia to get the technology to both the merchant (through the VIVOtech terminal) and the customer (through the mobile phone); this solves the chicken-and-egg problem that has been plaguing the industry for years. Apple has also staked a claim to NFC based on some recent patent applications. NFC is absolutely essential to mobile money because it provides everyone with a common, standardized technology to work with. Without it, the convenience factor would evaporate and customers would face the nightmare of different smart cards for every application from ticketing and parking to loyalty programs.

So what does this mean to you, your business, and your mobile app? It means that right now is the time to be strategizing about how you are going to leverage NFC for your payment solution, your loyalty program, or your coupon/marketing campaign. If you don’t use NFC, mobile money will blaze in on the next iPhone release and you will not only be scrambling to understand mobile-money, but frantic to regain a competitive advantage and implement NFC.