Banker’s Dilemma
NFC or non-NFC Mobile Payments

Matthew Witheiler
Flybridge Capital Partners
QUIZ TIME!

1. Who in the audience has an NFC phone?
Keep your hands up

2. Who has used the NFC portion of your phone in ...
SPEAKING FRANK

Frankly, mobile payments will be huge
but I do not think NFC is the horse to
bet on
STEPPING BACK: A BIT OF HISTORY

• NFC was created in 2004 by Nokia, Philips and
Sony
– NFC Forum created to “promote the ...
NEXT UP: DISAPPOINTMENT

• Almost since inception, NFC has over-promised
and under-delivered
“NFC offers tremendous potent...
STATE OF PLAY TODAY
•

NFC-enabled phones are all over the place globally
– 30M units sold in 2011
– 100M units sold in 20...
HOW DID WE GET HERE

• It turns out that NFC adoption isn‟t as easy as getting
chips in mobile phones
– The path to NFC ad...
COMPLEXITY ABOUNDS

• Take NFC Security as an example
THE FAILED ANALOGIES

• The common rebuttal to this argument is to point to
Kenya, Japan and Korea as success cases of NFC...
ALTERNATIVE SOLUTIONS

• In the absence of NFC adoption, merchants and
consumers are hacking the system
– Implementing ver...
WHAT TO DO?

• First off, don‟t feel bad if you spent cycles on NFC
– “One third of all terminals will be NFC enabled by 2...
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NFC or Not to NFC

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Some thoughts shared recently around NFC and it's value in the payments world.

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NFC or Not to NFC

  1. 1. Banker’s Dilemma NFC or non-NFC Mobile Payments Matthew Witheiler Flybridge Capital Partners
  2. 2. QUIZ TIME! 1. Who in the audience has an NFC phone? Keep your hands up 2. Who has used the NFC portion of your phone in a retail transaction? Keep your hands up 3. Who does NOT work at ISIS or Google?
  3. 3. SPEAKING FRANK Frankly, mobile payments will be huge but I do not think NFC is the horse to bet on
  4. 4. STEPPING BACK: A BIT OF HISTORY • NFC was created in 2004 by Nokia, Philips and Sony – NFC Forum created to “promote the security, easy of use and popularity of near field communication” • The technology itself was not new but the players around the table were – RFID, NFC‟s predecessor, can be traced back to the „70‟s – RFID even had a go at payments with VeriFone (Speedpass) back in ‟97, MasterCard (PayPass) in ‟03, AmEx (ExpressPay) in „05 and Visa (payWave) in ‟07 • But the players around the table were – Marked the first time semiconductor companies teamed up with the leading handset vendors to complete the payments vision • The First NFC phone hit the market in February 2006 Cutting-edge 2006 technology
  5. 5. NEXT UP: DISAPPOINTMENT • Almost since inception, NFC has over-promised and under-delivered “NFC offers tremendous potential” - Nokia, 2007 “NFC technology is quickly gaining momentum” - NFC Forum, 2008 “2009 was supposed to be the year for NFC” - SecureID News, 2009 “NFC… appears to be making a comeback” - GigaOM, 2010 “NFC could be a standard with in 2 years” - CNN, 2011 “NFC will become a central part of every mobile phone user’s life” - USA Today, 2012 “NFC stands for Nobody F****** Cares” - TechCrunch, 2013
  6. 6. STATE OF PLAY TODAY • NFC-enabled phones are all over the place globally – 30M units sold in 2011 – 100M units sold in 2012 • But the majority of them are finding international homes – 5M units sold in 2011 in the US – 18M units sold in 2012 in the US • • That‟s the same number of iPhone Apple shipped in Q4 2012 And there are few places to use them for payments – Only approximately 2% of merchant locations in the US have incorporated NFC – With a 7-10 year terminal replacement cycle, it‟ll take years before this number increases to a meaningful level • Worldwide, NFC is estimated to account for 2% of mobile payment transaction value – Meaningfully less domestically • Some major NFC initiatives have shuttered, others are struggling with adoption – Google Wallet essentially dead – ISIS lost Capital One last month
  7. 7. HOW DID WE GET HERE • It turns out that NFC adoption isn‟t as easy as getting chips in mobile phones – The path to NFC adoption is complex and players have ulterior motives Issuing Banks Retail Banks Merchant Acquires Merchant Chip Manufacturers Consumer Handset Manufacturers POS Manufacturers Payment Network Carriers Merchant Third-party Services Carriers  Opportunity to diversify revenue stream  Will require payment for access and investment  Multiple carriers needed to reach critical mass Merchants  Opportunity to build loyalty and increase spending  POS upgrade a major hurdle to critical mass Issuing and retail banks  Opportunity to protect and deepen relationships  Want to maintain ownership of customers Payment Networks  Opportunity for revenue growth  Provide contactless “rails” to build mobile payments Third-party Services  Opportunity to exploit new channel  Will join after critical mass is achieved Acquirers and manufacturers  Opportunity for growth with limited risk  Will join ecosystem willingly High Risk Low Key player Support player User Users  Just want the thing to work
  8. 8. COMPLEXITY ABOUNDS • Take NFC Security as an example
  9. 9. THE FAILED ANALOGIES • The common rebuttal to this argument is to point to Kenya, Japan and Korea as success cases of NFC adoption • The analogy is a failed one due to unique market conditions – Kenya: single carrier in Safaricom, no banking regulation (really!), no established merchant or ATM infrastructure – Japan: dominant carrier in NTT (>50% market share), massive NFC phone adoption (47M phones), huge government catalyst in mandated NFC transportation ticketing – Korea: the national regulator brought together operators, banks and device manufactures to force adoption and standardization • The US has 3 nearly equal sized carriers, a fragmented bank ecosystem, billions in legacy infrastructure, and our government can‟t even agree that a law passed two years ago is actually a law – Can you imagine any of these conditions existing here?
  10. 10. ALTERNATIVE SOLUTIONS • In the absence of NFC adoption, merchants and consumers are hacking the system – Implementing vertical, cloud payment tools that are seeing strong adoption Provider Stat 575M accounts Issuing Banks Retail Banks Merchant Acquires Merchant Chip Manufacturers Handset Manufacturers Key player 3M+ users POS Manufacturers Little public data but very well adopted Payment Network Carriers Consumer Merchant 4M mobile transactions per week, >10% of all transactions Third-party Services Support player User New entrant
  11. 11. WHAT TO DO? • First off, don‟t feel bad if you spent cycles on NFC – “One third of all terminals will be NFC enabled by 2013” - Eric Schmidt (even he got it wrong) • Consider ways of plugging into non-NFC initiatives – BTLE holds promise with Apple and PayPal pushing the format and an established existing ecosystem (something NFC has lacked) – Cloud-based payment initiatives gaining momentum (and don‟t disrupt the established ecosystem, at least for now) – Be open to working with smaller companies and startups who are putting the consumer first

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