Episode 84 – Diving into the Deep Data Pool – Feedzai’s Saurabh Bajaj and Nick Stanchenko
ApplePay, NFC, QR (Oh My!) and the New POS
First There is a Mountain, Then There is No Mountain, Then There is…
I’ve been thinking about what the future of the point of sale environment will look like from a consumer perspective. Of course, 10 years ago, we all knew what it was going to look like: consumers tapping their mobile phones to Near Field Communication (NFC) equipped POS terminals, transferring card data that looked a lot like magnetic stripe data. The card issuers loved the vision, the card networks loved it too, and the phone providers (who owned the space on the phone) were dreamy-eyed just thinking about all the new revenue.
Google, and its Android phone operating system (53% U.S. phone share) even signed up — first with an approach that aligned with the original Secure Element based design and later with the Host Card Emulation approach, which wrested NFC from the sole control of the carriers. But Apple (42% U.S. phone share) remained silent.
And our belief in an NFC future waned.
In the meantime, the Merchant Customer Exchange (MCX) conceptualized CurrentC, a QR code-based solution supported by the very largest merchants in the U.S. And some MCX merchants, like 7-Eleven and Best Buy, were rumored to disable NFC functionality at their POS. All the while, a whole ecosystem of wallet providers emerged, using a variety of technologies to fuel merchant and third party apps like the Starbucks wallet, TabbedOut and Level Up.
So we hedged our bets on NFC.
And then Apple spoke: ApplePay.
In a shining example of what Apple does well — making complex things easier — Apple deftly orchestrated the existing payments ecosystem to embrace their new wallet design and to pay for the privilege! Suddenly, NFC was back, in a big way!
So, storyline aside, what will the payments environment look like in the future?
First and foremost, it will retain all the basic functionality we know today — supporting a card swipe and, increasingly an EMV read. The card acceptance environment will need to be “backwards compatible” for a long time, and most people will still be carrying cards to make purchases (with estimates of about 10% mobile payment penetration in 5 years).
The big question is, will we have two main mobile wallet camps (NFC and Non-NFC, championed by their respective camps), a single payment environment, when one or the other technology “wins” the wallet wars via consumer adoption, or a new omni-environment, where acceptance of many wallet types and technologies is enabled? My bet is on the last option. Here’s why the omni option will prevail:
As my colleague Carol has pointed out, the topic at hand is mobile commerce, not mobile payments. Consumer adoption of any wallet approach is going to be driven in part by convenience (and ApplePay wins here, with their Touch ID phone unlock), and by the ability of the wallet to drive compelling, timely, relevant ads and offers to consumers. No one has gotten that right yet. That means there is going to be a lot of consumer experimentation, testing which wallet and approach best works for them. We are very early into the hard work needed on ads and offers to make this thing really shine. (In the meantime, by the way, the credit card issuers will continue to play the customer loyalty game via the card-based swipes, taps and EMV “dips” where their interchange-based rewards programs attract the mileage and cash-back hounds.)
And lastly, don’t forget that just because MCX/CurrentC is saying “no” to NFC now, doesn’t mean they can’t change their mind and reconcile with the NFC crowd if consumers flock to that technology.
If you’re a merchant, I think it’s a tough time to be making POS decisions; NFC and contactless seem a no-brainer, but do I bet on QR-code solutions too and spend the extra bucks now? Maybe the other big event in POS solves that question for me: as merchants increasingly want to serve customers in aisle or tableside, we’ll see the emergence of general use tablets (iPads and Android) as well as special use devices (like Ziosk) that will have the flexibility to handle — or at least add on — new payment technologies as they get served out to consumers far and wide.