Home NFC Business Models, Challenges and Adoption Examined

NFC Business Models, Challenges and Adoption Examined

NFC, or near field communication, is an emerging technology that enables the exchange of data between devices in close proximity to each other, typically mobile phones. Much of the interest in the technology at present is in its potential to serve as the basis for a mobile payments system, such as the one Google is currently building or Isis, the U.S. operator-led mobile payments initiative.

However, mobile payment systems are just one of the many markets where NFC can succeed. According to a new research report by SJB Research analyst Sarah Clark, NFC’s true potential lies with its ability to bridge the gap between the real world and the online world.

NFC: Linking Real and Online Worlds

“Most NFC projects to date have been based around the use of a mobile phone or other device equipped with NFC technology to replace an existing service,” says Clark. But NFC-enabled devices can do far more, she explains. They can operate in three different modes: as card emulators, where they act as replacements for information stored on a plastic card; in peer-to-peer mode, where they exchange data with other devices; and in card/tag reading and writing mode, where they read or change information stored in an RFID tag or contactless card.

When combined with a communications network, NFC devices can link actions in the real world to consumer-facing or back office systems. And they can be used to provide instant feedback to users based on the actions a user makes.

NFC Business Models

In the new, detailed report, Clark examines developing a business model for NFC infrastructure, secure element issuers, the use of NFC in payments, how to gain buy-in from consumers and service providers and launch strategies for NFC services.

Clark says that the first and most important task in creating a business model for the provision of NFC services is to define the kind of infrastructure that will be used, as its design and competitive stance will have a fundamental impact on how willing service providers will be to adopt NFC. The more open the infrastructure, the more willing businesses will be to adopt the technology.

It’s also not required that providers own the secure element used to store consumers’ NFC applications and sensitive data. Solutions from mobile operators, handset manufacturers and others exist now that would enable B2B NFC services, she says.

NFC in Mobile Payments

As for mobile payments specifically, Clark identifies some challenges in this area. A solution that allows multiple card issuers and payments processors the ability to share space on an NFC handset has yet to be found, which is one of the major reasons why commercial NFC has taken so long to arrive.

In addition, consumers will expect to make payments using their existing full range of cards, including debit and credit cards, using NFC. This is why participation of banks is key to NFC’s success.

Meanwhile, card issuers are not threatened by NFC technology, but payment processors are, as it calls for a radical redesign on their part. However, this also creates an opportunity for smaller and more innovative banks without a payments processing arm to jump into this space and be among the first to offer on-handset NFC payments to consumers, says Clark.

Merchants, too, will need to get on board with NFC so they can process transactions at point-of-sale and persuading them to do so has not been easy.

Finally, getting consumers to begin adopting NFC can be a challenge as well. In urban areas, this can be accomplished by partnering with a single local transit merchant – that has the same impact on adoption as bringing hundreds of merchants on board, Clark says.

Other Applications May Arrive Before Payments

Outside of mobile payments, there is the potential for non-payments applications to arrive first, something which can be aided by providers targeting specific geographic areas and offering compelling services that require the use of NFC on a regular basis – ideally, daily. Targeting a particular type of customer or a given demographic group can help, too. Business travelers and household budget holders are especially attractive demographics.

There is much more detail in the full 170-page report available here, including detailed analysis NFC-related business models, NFC as used in mobile payments systems, challenges in both merchant and consumer adoption, launch strategies and more. Sarah Clark is also the editor of a well-known website NFC World, which tracks developments in this technology niche.

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The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

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