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The Resurgence of NFC

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11 December 2014
Zilvinas Bareisis
This is the time of the year when we begin to cast our eye back to 2014 as well as forward to 2015, and reflect on the top trends we are seeing in the market. One of the constants over the last few years in our annual Top Trends in Retail Payments report (coming up again in January 2015) has been our commentary on the ups and (mostly) downs of NFC and contactless payments. Yet, for the first time in years, it genuinely feels that NFC has finally taken a large step towards establishing itself as a major technology standard in mobile payments. Without a doubt, the biggest event in payments in 2014 was the launch of Apple Pay. Having resisted NFC for so long, Apple has finally added NFC capability to its latest devices, such as iPhone 6, thus opening up NFC to iOS. And, in a typical Apple fashion, it didn’t just add a bit of hardware, it created a fully-fledged solution with unparalleled user experience. However, the first few weeks after launch seem to have confirmed our concerns that Apple Pay was not going to be an overnight success. While the early news was encouraging with more than 1 million credit cards activated in the 72 hours following the launch, so far too few consumers are actually using Apple Pay. According to the InfoScout blog, 90.9% of iPhone 6/ 6+ users have never tried Apple Pay, and only 4.6% of those who could use Apple Pay during Black Friday, actually did. This has prompted some commentators to announce the death of Apple Pay and argue that its fate will be the same as that of many other attempts to revive NFC. The future of the payments industry remains hard to predict and the NFC “nay-sayers” may yet prove to be correct. However, we see a number of signs to be optimistic, both about Apple Pay and NFC adoption overall. The ongoing US migration to EMV and growing consumer awareness and adoption of new devices over time will help boost Apple Pay usage. More importantly, globally, as Apple Pay launches internationally and more banks become aware of Host Card Emulation (HCE) technologies, the issuers will have genuine options to deploy NFC solutions. Of course, contactless and NFC payments, even when they do gain mass adoption, are not going to be the only mobile payments option in the market. However, if for so many years it felt that the NFC land has been gripped by a long and harsh winter, we expect that it will feel a lot more like spring in 2015.

Comments

  • I agree, I believe there will be renewed interest in NFC throughout 2015. In the markets where investments in NFC issuance and acceptance have been made, such as Australia and many parts of Europe, significant progress has been made. Leadership by the schemes (e.g. MasterCard's European mandate for new terminals to be NFC enabled from 2016, and all terminals to be NFC enabled by 2020) will help drive this forward.

    With support in the form of Apple Pay and the government's BuySecure initiative, there now appears to be real commitment to the EMV standards, bringing the USA in line with the rest of the world. By including NFC and tokenisation within Apple Pay, the bar has been raised further, making transactions of any value over NFC a convenient, safe and secure reality.

    By launching Apple Pay first in the USA, Apple chose a tough acceptance market where >95% of locations don't currently accept NFC. Therefore at an aggregate level, Apple Pay in the USA was always going to be something of a slow burn rather than an overnight success. Apple did well to achieve high (>80%) coverage of the credit card market from the start. But it will take time for
    (a) customers to upgrade to a iPhone 6 (or an Apple Watch that can be paired with an iPhone 5), and
    (b) merchants to upgrade terminals to EMV & NFC.

    Public statistics on actual Apple Pay usage are hard to come by at this early stage - a few positive disclosures have been made by merchants including Walgreens, McDonalds and Whole Foods. The InfoScout survey therefore offers a tempting snapshot of Apple Pay usage.

    But I think it dangerous to read too much into it.

    The sample was small at just 408 iPhone6 owners - the criteria being that they had shopped at a store that supports Apple Pay on Black Friday (arguably the most stressful shopping day of the year), and who were willing to participate in the research. For many this may have been their first opportunity to try Apple Pay, so no great surprise that the top two reasons for not using it were (1) they didn't know they could, and (2) they forgot.

  • James, thank you for your detailed and insightful comment, appreciate it.