Some thoughts shared recently around NFC and it's value in the payments world.

1. Banker’s Dilemma
NFC or non-NFC Mobile Payments
Matthew Witheiler
Flybridge Capital Partners

2. QUIZ TIME!
1. Who in the audience has an NFC phone?
Keep your hands up
2. Who has used the NFC portion of your phone in a retail
transaction?
Keep your hands up
3. Who does NOT work at ISIS or Google?

3. SPEAKING FRANK
Frankly, mobile payments will be huge
but I do not think NFC is the horse to
bet on

4. STEPPING BACK: A BIT OF HISTORY
• NFC was created in 2004 by Nokia, Philips and
Sony
– NFC Forum created to “promote the security, easy of
use and popularity of near field communication”
• The technology itself was not new but the players
around the table were
– RFID, NFC‟s predecessor, can be traced back to the
„70‟s
– RFID even had a go at payments with VeriFone
(Speedpass) back in ‟97, MasterCard (PayPass) in
‟03, AmEx (ExpressPay) in „05 and Visa (payWave)
in ‟07
• But the players around the table were
– Marked the first time semiconductor companies
teamed up with the leading handset vendors to
complete the payments vision
• The First NFC phone hit the market in February
2006
Cutting-edge 2006
technology

5. NEXT UP: DISAPPOINTMENT
• Almost since inception, NFC has over-promised
and under-delivered
“NFC offers tremendous potential”
- Nokia, 2007
“NFC technology is quickly
gaining momentum”
- NFC Forum, 2008
“2009 was supposed to be the
year for NFC”
- SecureID News, 2009
“NFC… appears to be making a
comeback”
- GigaOM, 2010
“NFC could be a standard with in
2 years”
- CNN, 2011
“NFC will become a central part
of every mobile phone user’s life”
- USA Today, 2012
“NFC stands for Nobody F******
Cares”
- TechCrunch, 2013

6. STATE OF PLAY TODAY
•
NFC-enabled phones are all over the place globally
– 30M units sold in 2011
– 100M units sold in 2012
•
But the majority of them are finding international homes
– 5M units sold in 2011 in the US
– 18M units sold in 2012 in the US
•
•
That‟s the same number of iPhone Apple shipped in Q4 2012
And there are few places to use them for payments
– Only approximately 2% of merchant locations in the US have incorporated NFC
– With a 7-10 year terminal replacement cycle, it‟ll take years before this number
increases to a meaningful level
•
Worldwide, NFC is estimated to account for 2% of mobile payment
transaction value
– Meaningfully less domestically
•
Some major NFC initiatives have shuttered, others are struggling with
adoption
– Google Wallet essentially dead
– ISIS lost Capital One last month

7. HOW DID WE GET HERE
• It turns out that NFC adoption isn‟t as easy as getting
chips in mobile phones
– The path to NFC adoption is complex and players have ulterior
motives
Issuing
Banks
Retail
Banks
Merchant
Acquires
Merchant
Chip
Manufacturers
Consumer
Handset
Manufacturers
POS
Manufacturers
Payment
Network
Carriers
Merchant
Third-party
Services
Carriers
 Opportunity to diversify revenue stream
 Will require payment for access and investment
 Multiple carriers needed to reach critical mass
Merchants
 Opportunity to build loyalty and increase spending
 POS upgrade a major hurdle to critical mass
Issuing and retail banks
 Opportunity to protect and deepen relationships
 Want to maintain ownership of customers
Payment Networks
 Opportunity for revenue growth
 Provide contactless “rails” to build mobile payments
Third-party Services
 Opportunity to exploit new channel
 Will join after critical mass is achieved
Acquirers and manufacturers
 Opportunity for growth with limited risk
 Will join ecosystem willingly
High
Risk
Low
Key player
Support player
User
Users

Just want the thing to work

8. COMPLEXITY ABOUNDS
• Take NFC Security as an example

9. THE FAILED ANALOGIES
• The common rebuttal to this argument is to point to
Kenya, Japan and Korea as success cases of NFC
adoption
• The analogy is a failed one due to unique market
conditions
– Kenya: single carrier in Safaricom, no banking regulation (really!), no
established merchant or ATM infrastructure
– Japan: dominant carrier in NTT (>50% market share), massive NFC
phone adoption (47M phones), huge government catalyst in mandated
NFC transportation ticketing
– Korea: the national regulator brought together operators, banks and
device manufactures to force adoption and standardization
• The US has 3 nearly equal sized carriers, a fragmented bank
ecosystem, billions in legacy infrastructure, and our
government can‟t even agree that a law passed two years ago
is actually a law
– Can you imagine any of these conditions existing here?

10. ALTERNATIVE SOLUTIONS
• In the absence of NFC adoption, merchants and
consumers are hacking the system
– Implementing vertical, cloud payment tools that are seeing
strong adoption
Provider
Stat
575M accounts
Issuing
Banks
Retail
Banks
Merchant
Acquires
Merchant
Chip
Manufacturers
Handset
Manufacturers
Key player
3M+ users
POS
Manufacturers
Little public data but very well
adopted
Payment
Network
Carriers
Consumer
Merchant
4M mobile transactions per
week, >10% of all transactions
Third-party
Services
Support player
User
New entrant

11. WHAT TO DO?
• First off, don‟t feel bad if you spent cycles on NFC
– “One third of all terminals will be NFC enabled by 2013” - Eric
Schmidt (even he got it wrong)
• Consider ways of plugging into non-NFC initiatives
– BTLE holds promise with Apple and PayPal pushing the format
and an established existing ecosystem (something NFC has
lacked)
– Cloud-based payment initiatives gaining momentum (and don‟t
disrupt the established ecosystem, at least for now)
– Be open to working with smaller companies and startups who
are putting the consumer first