Trends Assessment #1: Mobile Payments Using NFC, 2-14-12

What’s In Your Wallet? NFC-Enabled
Mobile Payment Systems

Andrew Baird
MKTG – 7546
2/14/2012

What’s In Your Wallet? NFC-Enabled Mobile Payment Systems

NFC Ramps up the Frequency of Mobile Payments

As consumers and businesses continue to embrace theadvances in technology contained in
smartphones and tablets, many everyday tasks can now be carried out on-the-go. Mobile Payment
systems are one such example,culminating in applications such as bank transfers, purchasing goods and
services through apps and mobile websites, and scanning coupons to receive discounts at point-of-sale
(POS) terminals. Up until September 2011, U.S. consumers had not been able to use stored credit card
information ontheir mobile devices(mobile wallets) as payment toolsat POS terminals. But now, near
field communication (NFC) technology is making mobile wallets and other applications of mobile
payments a more commonplace concept in the United States and abroad.

NFC technology has been around for many years, having beendeveloped by Philips and Sony in
the 1990s and acknowledged by the International Standard Organization in 2003 to allow secure
contactless communication1. Underlying the technology is the ability for certain mobile phone models
and other NFC-enabled devices to establish a radio connection by touching them together or coming
within close proximity. While there were only seven NFC-enabled phones worldwide at the close of
2011, the Yankee Group estimates that by 2015, 203 different models will be enabled with NFC
technology1a.

NFC mobile payments are currently found mostly in Asia, where paying with a NFC-enabled
mobile phone or an NFC-smartcard is already part of everyday life. According to comScore’s “The 2010
Year in Review,” in December 2010, 9.8 million Japanese mobile users carried out a purchase using their
mobile wallets, which is nearly 10% of the country’s base of nearly 100 million mobile subscribers1.
Retail and convenience stores were the locations where mobile wallets were most used, as 7.6 million
Japanese mobile subscribers used their wallets at such locations in December 20101b. In the United
States, adoption of mobile wallets began on a limited basis in September 2011 with the release of
Google Wallet on Sprint’s Samsung Nexus S 4G smartphone, which runs Google’s Android software.
Google’s partnership with MasterCard allows U.S. consumers to use their NFC-enabled phone to pay for
goods by tapping their phones at MasterCard PayPass terminals. MasterCard’s established
infrastructure of installed NFC readers at 150,000 merchants in the U.S. and 230,000 overseas presents
a tremendous opportunity for increased integration of Google Wallet, but currently only about two
dozen merchants (GAP, Macy’s Jamba Juice, and American Eagle Outfitters among others) accept Google
Wallet, with more on the way2.

Momentum for using NFC technology for mobile payment systems is building, and the coming
years will bring increased adoptionrates of the technology, as well as security and control concerns. In
addition to Google Wallet, Visa and American Express have each established mobile payment systems.
ISIS, a coalition between AT&T, Verizon Wireless, and T-Mobile is working to store multiple credit and
debit cards within its payment system3.Asecurity hack within Google Wallet in early February 2012
revealed that if someone obtained an NFC-enabled device installed with Wallet, he could obtain the
owner’s credit card PIN number and activate card numbers and transaction history4.This type of
vulnerability casts serious doubt on the immediacy of increased adoption rates among merchants and
consumers alike. Furthermore, business issuesexist about creating the infrastructure to implement
widespread mobile payments, as well who will ultimately controls and manager the mobile payment
system (phone carriers, financial institutions, or payment networks).

Despite the potential drawbacks, opportunities for brands to interact with their
customersareextremely appealing. Mobile payments using NFC allows merchants and other brands to

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identify customers, track their interests based on where they go and what they purchase, and then
provide incentives to customers based on past purchase behavior5.According to Juniper Research, by
2014, NFC transactions alone will approach $50 billion and Google predicts that 50% of mobile devices
will use NFC technology3. Forester Research predicts that the 2012 Olympics in London will be the first
major event where mobile payment systems using NFC will be on display in a major way6. Given the
availability of the technology and the appetite for implementation by all parties, it is safe to assume
thatconsumers, merchants, brands, and governments will all be incorporating NFC mobile payments in
years to come.

Transportation, QSR Industries Provide Safe Haven for NFC Mobile Payments; Independent Retail,
Vending Offer Future Potential Applications

On face value, the New Jersey Transit Authority may not sound like it would be at the forefront
of innovative new technology featuring Google applications. But with Google’s inclusion of New Jersey
Transit as a partner in its initial deployment in September 2011, the U.S.’s third largest public transport
provider joined the fray of forward-thinkingorganizations accepting NFC-enabled mobile payments using
Google Wallet. Passengers are currently able to purchase paper transportation tickets at New York Penn
Station POS vending machines and ticket windows, and at Newark Liberty International Airport Rail
Station for select bus routes. New Jersey Transit provides 223 million passenger trips per year, making it
an attractive channel for generating increased awareness and adoption of the NFC-enabled technology7.
Among the most tangible benefits for passengers currently using Google Wallet are an improved ticket
purchasing experience, decreased boarding times, and decreased transaction times.

While New Jersey holds the distinction of being the first public transport system in the United
States to adopt NFC-enabled mobile payments, it did not rollout the technology in a way that
demonstrates the true potential of the technology for the transportation industry. First of all, New
Jersey transit allowed passengers to use Google Wallet to purchase paper tickets, failing to integrate its
the feature that would take advantage of the built-in NFC capabilities of the phone itself (in this case,
the Samsung Nexus S 4G). The trial does not bring additional value to the passenger by using Google
Wallet, as passengers can simply use their regular credit cards at POS terminals and obtain tickets just as
quickly. Given the limited nature of the pilot, New Jersey Transit should have invested in a limited
number of NFC-enabled terminals that would allow passengers with Google Wallet to simply touch the
terminal with their mobile phones for a default single ride. The Transit system could then track the
average time from entering the rail station to boarding compared to those with even a weekly or
monthly pass to determine the increase in efficiency.

The concept of truly mobile ticketing holds tremendous possibilities for the future in all sectors
of transportation, given appropriate security measures and collaboration with financial institutions and
payment networks. If passengers know that they can walk into a station and hop right onto a train or
bus with the swipe of their mobile device, they can plan their schedules throughout the day much more
efficiently. Should NFC-enabled terminals become widely available and the trend become more
widespread in transportation across modes and regions, passengers could plan trips across long
distances using their mobile devices to pay for multi-modal tickets throughout the trip. For example, a
passenger might purchasea mobile ticket from New Jersey to the airport for a flight departing in three
hours. If there is a delay associated with the route, the passenger could receive an alert through the

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New Jersey Transit app (tied to Google Wallet) informing the passenger that getting off at an earlier rail
station and taking a taxi to the airport would get him to his flight on time. New Jersey Transit could thus
create partnerships and affiliations with airlines, car rental companies, and other transit systems to cut
down on wait times and delays and ensure an outstanding customer experience across all touchpoints.

Given the high volume of daily transactions at Jamba Juice, it should come asno surprise that the
quick-service restaurant (QSR) chainbought into Google Wallet at its onset. Jamba Juice’s initial launch
of incorporating Google Wallet kicked off at more than 200 locations in New York, San Francisco, Los
Angeles, Chicago, and Washington, D.C. in September 2011. The company did not implement a pilot
stage, and instead built and installed the necessary hardware and software in July 20118.This significant
investment in technology infrastructure allowed Jamba Juice to become one of the first eight U.S.
merchants to offer special coupons and loyalty programs via Google Wallet’s SingleTap feature.
SingleTap is a unique feature of Google Wallet that incorporates Google’s daily deals program, Google
Offers, into the NFC-enabled application. As a result, Jamba Juice has been able to offer an exclusive
discount to Google Wallet users for an all-fruit smoothie for $2 at participating locations in October
20119. According to Jamba Juice’s Vice President of IT, Robert Notte, it was the integration of Google
Offers with Google Wallet that will allow Jamba Juice to capitalize on the NFC-enabled mobile payment
trend. “*Google Offers+ provides us the opportunity to engage in a more frequent and deeper
relationship with our customers, and increase our brand awareness, especially on the web,” said Notte8.

Discounts have changed the way consumers use social media when looking for discounts, as
61% of the time, consumers interact with brands on social media sites, they do so for a discount10.
While this may seem to erode the value of one’s product, in a quick-service restaurant like Jamba Juice
where there are a high volume of average daily transactions, placing discounts in the hands (i.e. phones)
of consumers may not be as detrimental as with other businesses. Jamba Juice made a substantial
commitment to getting out in front of its customers and making the purchase experience convenient,
fast, and fun. Add to the fact that customers can also save money on each purchase, and it is clear that
Jamba Juice has implemented Google Wallet effectively thus far.

The one item that Jamba Juice should have considered implementing with regard to digital
marketing would be to integrate the Google Places feature with Google Wallet/Offers. This would allow
Jamba Juice to deliver a coupon only after the NFC-enabled mobile user provided a review on Google
Places about the Jamba Juice location she visited. In doing so, Jamba Juice would be able to improve its
localized search engine optimization, customer feedback and participation, and customer loyalty all at
once. By tracking redemption rates of the particular coupons, Jamba Juice could also increase visibility
to how many reviews it was receiving per location to better understand and track its customers and
their buying habits. By encouraging customer participation and feedback, Jamba Juice would be able to
make more informed decisions about who its customers are, what they like about the company, and
how to tailor products to their distinct tastes.

One does not need to look further than the current roster of Google Wallet partners to see how
much of an impact NFC mobile payments will have on the retail industry in years to come (19 of 26
merchants are currently retail merchants). While these well-known retail industry partners will certainly
have the best opportunity to leverage the technology because of their ability to invest in the necessary
hardware and software, it is the independent retailers that may seek to benefit the most. With
competition heating up between ISIS, Visa, and American Express to get their mobile payment systems
to market after Google, there will be tremendous opportunity for one or more of these systems to

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partner with small businesses to incent consumers to shop at independent retailers using local-,
regional-, or industry-specific loyalty programs through NFC payment systems. American Express(AMEX)
currently sponsors “Small Business Saturday” in late November, which encourages shoppers to purchase
Christmas gifts from small business owners in lieu of larger retailers. If American Express were to extend
a “Small Business Saturday”-type loyalty program throughout the year, it would attract potential
consumers to smaller, local retailers who would partner with AMEX participate. The retailers could join
a“Small Business Network”-type program and provide a summary of products/services, specific offers
that would accrue points to be used at participating retailers, and exchanges for redeemable rewards.

Consumers are already used to seeing vending machines in a variety of places: office buildings,
pharmacies, airport terminals, grocery stores, etc. These days, consumers can find a number of diverse
products in a vending machine, ranging from soda to DVDs to digital cameras. Given the ease of use and
simplicity of making a transaction through a vending machine, NFC-enabled mobile payments are a
natural fit for vending machines. Because of the unique capability to implement deals through Google
Offers, consumers will experience a heightened awareness of vending machines in the future. If a
vending machine possesses NFC technology, it would also potentially possess geo-fencing capabilities
that would send tailored deals and offers to customers as they were passing by. For example, if a
consumer has a Redbox DVD rental account and has placed a particular video in her queue, her Redbox
mobile app could alert her when she is within one mile of the desired video. Using her Google Wallet,
the customer could reserve the video and then redeem the offer using her NFC-enabled phone at the
vending machine, which would recognize her based on integrated customer information between her
Redbox account, Google Offers, and credit card information. This real-time customer experiencehas the
potential to uncover tremendous potential for other products and services in vending, such as hot and
cold food and beer at sporting events and concerts, which would allow the companies to track customer
use over time and gain better customer data based primarily on specific purchase behavior.

NFC Mobile Payments in the Future: Location Levels the Playing Field

The exchange of money has transformed many times in history, going from bartering to coins to
paper to plastic, and now to phones. This advancement affects not only the companies who have plans
to institute NFC-enabled readers at POS terminals, but moreimportantly, the consumers who desire to
carry less with them andintegrate all aspects of their lives into their mobile devices. Beyond the mobile
wallet application, NFC allows consumers to instantaneously share information by touching their NFC-
enabled phones together. Transferring money, business contacts, documents, news stories, and the like
will be as easy as a simple tap of the phone.

Warner Siebert, Co-Founder and CEO of BuzzTable, a mobile Customer Relationship
Management platform for restaurants and their guests11, is keenly aware of how NFC-enabled mobile
payments are changing the business landscape. Siebert believes that the sheer volume of NFC mobile
transactions will impact the overall business landscape with an emphasis primarily on local businesses.
“Businesses will do more transactions,” Siebert said. “Small & medium-sized and local businesses will be
affected most. Security issues may come into play, though.” Speaking of security, there is a major
concern among both businesses and consumers aboutthefts of credit card and PIN information in light
of the Google Wallet hack two weeks ago. A thief would still need to activate the security chip within
the phone using a personalized PIN to obtain credit card information. The PIN thus prevents

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unauthorized access and payments via the mobile wallet, adding an additional security layer from a
traditional credit card, which could be swiped more easily from a thief.

Despite the security concerns, Siebert thinks NFC mobile payments are on the up and up. “[NFC
Mobile is] one of the most exciting trends, in my opinion,” said Siebert. “Mobile is changing the way we
communicate and behave in our daily lives, because it is the bridge between the digital and real world.”
Although Siebert cannot comment on how BuzzTable plans to utilize mobile payments based on an
upcoming product launch, he is bullish on the possibilities of NFC and mobile payments as valuable tools
for marketers: “Mobile unleashed a whole new element to Marketing…location. Marketers will be able
to take advantage of individual consumers’ GPS coordinates and guide them to their nearest vendor
location.” The way in which companies get in front of their customers is at the heart of the NFC mobile
payment movement. As nice as it is for consumers to be able to pay for products and services with the
swipe of their phones, they need to be able to find those products and services first. With increased
adoption rates of NFC technology at POS terminals, marketers will undoubtedly implement creative
ways to tap into existing technology on mobile devices and put their brands and products literally in the
hands of their potential customers.

As mobile manufacturers ramp up production of NFC-enabled devices and place it in the hands
of consumers, certain industries and businesses will be impacted more than others. Siebert believes
that restaurants, retailers, transportation, and mostly local businesses will be impacted in the near term
by NFC and mobile payments. Jamba Juice and New Jersey Transit are examples of restaurants and
transportation, and Google Wallet has partnered with a number of leading retailers to deploy mobile
payments using the app, but what about other local businesses? Local services like dry cleaning,
computer hardware repair, and printing/shipping services can all be automated to a much higher
degree. Let’s say that a consumer wants to drop off some dress shirts to be dry cleaned. The consumer
could potentially enter the details of how many shirts he would like to have cleaned through the
cleaner’s mobile website and receive a confirmation number or QR code. When the customer pulls up
to the dry cleaners, all it takes is him dropping off the clothes and swiping his mobile device on an NFC
reader to process the drop off and payment. This type of quick and instantaneous service will
encourage more transactions for local businesses and incent customers to employ the newfound
technology to support their local businesses.

The prevalence of NFC mobile payments is mostly dependent on accelerated adoption rates by
consumers moving forward. Siebert believes that this movement is all but ensured. “The biggest
change will just be in consumers’ change in behavior,” Siebert said. “Mobile payments will become the
‘norm’ very shortly. I’ve heard one in five devices by 2013 worldwide will have NFC enabled. Yet again,
we move further away from physical currency. We will start to see more and more
Marketing/Advertising for mobile payments as well.” Indeed, according to Juniper Research, 20 percent
of all mobile phones manufactured next year will use NFC technology3. With all parties (hardware
manufacturers, operating systems, credit card companies, mobile network operators) involved making
the necessary investments to take advantage of the power of NFC mobile payments, which firms will
have the biggest impact?

“Visa and AMEX are currently the kings of the jungle, and they have a lot of money to back them
up,” says Siebert. “But will they be able to keep up with the fast moving younger companies àla Google
and Square? Only time will tell.” Google has already made serious strides in increasing adoption rate
for its Android users by becoming the first active mobile wallet in the United States, and given the level

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of horizontal integration Google seeks to implement withal of its users, the tech giant could pull ahead
of its competition early. “Google Wallet + Android OS is a powerful combination…lots of payment
information is already flowing through Android devices everyday,” said Siebert. Whenever mentioning
companies riding the wave of innovative new technologies, one cannot omit Apple. “Apple could also
do some very interesting things,” says Siebert. “They have iOS devices in the hands of millions of people
worldwide and they also have associated Apple ID accounts with hundreds of millions of credit cards on
file. eBay/PayPal should also be somewhere on this list.” The advantage for credit card companies,
mobile carriers, Apple, and eBay/PayPal is that because they already process transactions with
customers, they have access to millions of credit-card backed customer accounts. With an initiative like
ISIS, mobile users could potentially bill their mobile wallet purchases to their monthly phone bills,
meaning there would be no new credit card registration or significant barriers to entry12. Customer
intimacy with Apple products may also allow the company to become the system of choice for many die-
hard fans.

Businesses will be facing more fierce competition than ever as NFC mobile payments gain
momentum in the coming months and years. According to Siebert, companies employing mobile
payments will operate on a more level playing field compared to their competitors because of the ease
of processing. “NFC has the ability to offer vendors (merchants/local businesses, etc.) a differentiated
advantage, in the form of lower processing fees,” says Siebert. “LevelUp has it down to 2%, so
merchants accepting mobile payments instantly save more money than taking a credit card.” Businesses
will need to focus their efforts on using localization and personalization to attract customers to their
businesses. Understanding the customers behavior, tracking this behavior, and serving up relevant
messaging and offers at the appropriate time will help stave off increased competition in the NFC-
heightened environment. Customer data and analysis will become the most important resources for
digital marketers employing NFC-enabled mobile payments. The ability to turn that data and analysis
into a meaningful, customized relationships with individual customers is what will ultimately result in
competitive advantage.

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References:
1. “Mobile Payments 2012: My mobile, my wallet?” (Whitepaper). de Bel, Jeroen (Innopay) and
Gâza, Monica(The Paypers). September 2011. Publisher: Innopay. Available for download at:
http://www.innopay.com/publications/mobile-payments-2012-my-mobile-my-wallet.
a. Figure 3: Number of NFC-enabled phones worldwide. Source: Yankee Group, 2011:

b. Figure 6: Location of mobile wallet purchases in Japan. Source: comScore – ‘The 2010
Mobile Year in Review’, 2011:

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2. “No Cards, No Cash. Just a Phone.” Pogue, David. The New York Times Online. September 21,
2011. http://www.nytimes.com/2011/09/22/technology/personaltech/googles-virtual-credit-
card-can-replace-plastic.html?_r=1&pagewanted=all.
3. “The Future of Mobile Payments” *INFOGRAPHIC]. Parr, Ben. Mashable.com. July 8, 2011.
http://mashable.com/2011/07/08/the-future-of-mobile-payments-infographic/.
4. “The Google Wallet Hack Is Not The End of the World (Or Even NFC) As We Know It *Update:
Google Reacts+.” Eaton, Kit. Fast Company Online. February 9, 2012.
http://www.fastcompany.com/1815129/google-wallet-hack-brute-force-pin-
hash?partner=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fas
tcompany%2Fheadlines+%28Fast+Company+Headlines%29.
5. “Near field communication the next mobile boost?” Thompson, Cadie. USA Today Online.
January 8, 2012. http://www.usatoday.com/tech/news/story/2012-01-08/cnbc-near-field-
communication-mobile/52443756/1.
6. “How Mobile Payment Systems Are Redefining Commerce.” Warren, Christina. Mashable.com.
April 6, 2011. http://mashable.com/2011/04/06/mobile-payments-commerce/.
7. “New York and New Jersey Transit Systems Tap into NFC Ticketing.” Mass Transit Magazine
Online. November 18, 2011. http://www.masstransitmag.com/news/10452434/new-york-and-
new-jersey-transit-systems-tap-into-nfc-ticketing.
8. “A Brand New Wallet for a Brave New World.” Lorden, Abigail A. Hospitality Technology
Magazine Online. September 12, 2011.
http://hospitalitytechnology.edgl.com/magazine/September-2011/A-Brand-New-Wallet-for-a-
Brave-New-World75497.
9. “Google Wallet SingleTap payments and offers now available at eight US merchants.” Clark,
Sarah. Near Field Communications World. October 18, 2011.
http://www.nfcworld.com/2011/10/18/310748/google-wallet-singletap-payments-and-offers-
now-available-at-eight-us-merchants/.
10. “Online Value Chain Dynamics.” Brey, Eric. MKTG – 7546 Marketing in a Digital Environment
PowerPoint Presentation. January 17, 2012.
http://www.slideshare.net/ProfessorBrey/mktg754601online-valuechainmodule1.
11. Warner Siebert Bio:
Warner H. Siebert has spent his professional career in traditional, digital, and mobile marketing.
Warner spent his early 20's as a sales and marketing executive at Clear Channel Communications
where he developed custom marketing programs across radio, online, and live events for local
and national advertisers. He was a top-earner in new local business for two consecutive years
and was also the Digital Advertising Specialist for his respective team. In 2009, Warner co-
founded, Branded Evolution, an emerging media consulting firm, where he worked on various
projects with top brands, agencies, publishers and technology vendors, including: Davidoff
Cigars, Razorfish/Mercedes-Benz, Publicis' Big Fuel Communications/General Motors, Fast
Company, StockTwits, and more. Warner is currently Co-founder & CEO of BuzzTable
(www.buzztable.com), a mobile Customer Relationship Management platform for restaurants
and their guests. He is originally from Baltimore, MD and graduated with honors from Denison
University in Granville, OH.
12. “Google and Verizon Battle Over Mobile Payments.” Isaac, Mike. Wired Magazine Online.
December 6, 2011. http://www.wired.com/gadgetlab/2011/12/google-wallet-verizon-nexus/.

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Trends Assessment #1: Mobile Payments Using NFC, 2-14-12

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Trends Assessment #1: Mobile Payments Using NFC, 2-14-12