A longview by GigaOM Pro contributor Ryan Kim. Originally published November 18, 2011.

1. 2012: the year of confusion for NFC payments
Ryan Kim | Friday, November 18, 2011
Near field communication (NFC) payments seem poised for takeoff next year in the U.S.,
with the launch of Isis from the carriers and a wider deployment of Google Wallet. But
while 2012 will surely mark some big growth for NFC, it is also likely to be a year full of
confusion as the technology and the business relationships around it work through a
number of challenges. Those include consumer adoption, standardization and
interoperability, merchant uptake and evolving business models, and the players working
with, not against, one another.
Progress ? but with moving parts
After years of trial and preparation, 2011 has been a pivotal year in helping prepare NFC
for mass adoption. We have seen the launch of Google Wallet, the commitment of
handset manufacturers and credit card companies behind Isis and the cooperation of NFC
reader manufacturers like VeriFone, which is building NFC into all of its new payment
terminals. Payment networks like Visa are getting involved with carrot-and-stick
approaches to convince merchants to adopt NFC. And though NFC phone shipments are
modest right now, perhaps less than 40 million this year, there is potential for about 100
million units to be sold next year. But NFC chip shipments are expected to ramp up
quickly, hitting 1.2 billion by 2015, according to In-Stat.
As with any new big technology, many moving parts exist, and those will cause a number
of growing pains that we will see on full display next year. The technology itself won?t be
as much of an issue. Rather, much will come down to how the different players in the
markets work together and how each party finds value in its piece of the NFC ecosystem.
?There?s so much value and eventual consumer desire in NFC that it?s inevitable,?
VeriFone CEO Douglas Bergeron said. ?But we won?t get there without some first tough
steps. I don?t think the next year will be the year of the mobile wallet. It?s more a year
where we get things resolved, we see where things are going and we have more
capabilities on the phones and then the subtle appreciation by retailers that this is really
coming.?
Plenty of challenges for 2012
Here is a look at some of the issues facing NFC next year.
Consumer comfort. Consumers will need to first become more familiar ? and

2. comfortable ? with the idea of NFC payments. There are still lingering concerns about the
safety and security of contactless payments, and those will come to a head next year when
Google Wallet rolls out on more devices and is accepted at more retail locations and when
Isis finally has its formal launch. Consumers will need to be sold on the value of NFC
overall and its benefits over a card swipe, which is pretty convenient for most people.
Users will also have to choose among types of digital wallets, which will likely not work
on all devices initially and all networks and won?t be supported by different retailers and
merchants to the same degree. Visa is also coming out with its own digital wallet called
V.me that will incorporate NFC. Users may find the confusion a little off-putting and may
wait for more clarity.
Coexisting players. The two main NFC wallets, Google Wallet and Isis, will also need to
figure out how to coexist. Right now, Google Wallet is ahead in the game, but it?s limited
to just one device: the Samsung Galaxy S from carrier partner Sprint. Google Wallet has
not been able to be activated by other devices from AT&T, Verizon and T-Mobile, who
are collaborating together on their NFC joint venture, Isis.
The two wallets are similar in many technical ways, but Isis will charge fees to banks and
other financial institutions to host them on the secure elements of their NFC-enabled
phones. Isis has also won support from HTC, LG, Motorola Mobility, RIM, Samsung
Mobile and Sony Ericsson, so it?s looking like Google may have trouble getting its wallet
on more devices.
There?s no reason why both wallets can?t work on the same device, but the Isis carriers
need to be convinced to let that happen. Having the two wallets interoperate well could
help bring more value and clarity to merchants and consumers, but it?s not clear that these
two are interested in moving quickly toward some kind of deal.
Investment. Merchants will first have to decide when to make the investment to support
NFC. Without many NFC handsets in the market, there may not be much incentive early
on. But with NFC phones expected to proliferate starting in 2012, they might start the
necessary upgrades next year.
Still, merchants will face a lot of questions about which wallet to support. Some early
adopters will have no problem integrating with both, but many merchants may wait for
some type of cooperation between the wallets so they can better optimize their efforts and
ensure that both platforms and their coupon and loyalty offerings work with their point-of-
sale systems. Some will also need to work out who owns the customer data in these
transactions. Google is forgoing payments;it wants data on users so it can provide targeted
offers. Some retailers will want that as well, which could also be an issue. These are

3. concerns that need resolving, said Charles Walton, the COO of NFC chip maker Inside
Secure, but it could be resolved quickly if some of the major players like Google and Isis
come together. ?We think at some point in the year, the business factors will settle
themselves out,? said Walton. ?It?s like the browser wars. The functionality is not that
different one to another, it just took a while to sort it all out.?
Finding the profit. A lot of the players are still working out their positions in this new
ecosystem and where they stand to make money off NFC payments. Outside Citi, the
banks haven?t jumped on board with Google Wallet, and some appear to be questioning
the business arrangement set up by Isis, which will charge banks to host their cards, said
Bergeron, the CEO of VeriFone. That?s going to be an issue in sorting out how much the
banks pay and how much Isis hopes to make from its NFC wallet. Dickson Chu, Citi?s
head of global enterprise payments for digital networks and mobile, complained last
month that Isis could be slowing the rollout of NFC by trying to extract too much of a toll
on banks. Isis has said it will launch next year with three banks. Getting acquiring banks
on board is going to be key, because that?s a relationship that many customers trust.
Getting their direct integration into the wallets will encourage more transactions and
should be easier than using prepaid accounts on the wallets.
Collaboration holds the key
Mick Mullagh, the CEO of ViVOtech, a provider of NFC hardware and software, said the
players in NFC payments need to consider how the overall mobile market and Internet
have come together through openness and collaboration. He said 2012 will be more of a
settling year as the relationships work themselves out, a process that could extend into
2013. But ultimately, the ecosystem will realize there is more money to be made by
working together than apart.
?We?ll eventually see more open collaboration models and more value propositions for
merchants,? said Mullagh. ?I think the major wallet providers will recognize that and
once they?re up and running, the natural evolution is to see how can they grow faster.?
The idea of collaboration is going to be key in NFC?s success. If the major players work
together and establish an even playing field, there?s a better chance that consumers and
merchants will get a more coherent look at the value of NFC payments that is not
fragmented by different business agreements.
We keep writing about the future of NFC payments, and every year seems like a
breakthrough. And in many ways, 2011 has been an extremely critical year in working

4. through a lot of the last trials, proving the technology, getting the hardware prepared in
both handsets and terminals, and creating the back-end work to make payments and offers
work. But there is still a lot of jockeying going on. Everyone wants a piece of this new pie
or at least doesn?t want to get left behind.
Now the hard work is not in establishing the technology but in striking the right business
arrangements and convincing consumers and merchants that this whole NFC thing is
worth it. I would like to think that with so much at stake, the interested parties would
cooperate quickly. But it?s because so much is at stake that we will likely have to slog
through a year or more of settling in and sorting out.
Friday, November 18, 2011
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