Tag Archives: IoT

NFC is DOA in the US.

NFC is DOA in the US.  There, I said it.  More specifically NFC is dead on arrival in the emerging space called “The Internet of Things” in the US market.  Regardless of how wonderful a specific technology may be it still gets down to value; who pays and who benefits.  The value of NFC to consumers in everyday use for payments, transferring files, pairing, etc., is limited at best.  The people that stand in line for hours to get the new “i Thingy” will jump on this as soon as Apple says its cool.  But trying to force this technology on everyday consumers, and more importantly retailers, who just want to buy stuff and move along is like pushing on a rope.  Regardless of how much time and effort you put behind it the result is ultimately futile.

First a little background:

NFC stands for Near Field Communication, which is actually an implementation of high frequency Radio frequency identification technology (RFID).  HF RFID works through a process called inductive coupling which means for objects to communicate they must share the same magnetic field.  That magnetic field is rather small therefore the objects in question like NFC phones or chips in credit cards must be in very close proximity that is often measured in millimeters.  This is why fears of identity thieves scanning your credit cards from a distance are completely unfounded.  Thieves would have to be so close that It would be much easier to simply steal your wallet, or worse yet, your phone.

The real world basis of what we now know as NFC comes from what had been known as “Contactless” technology.  Legacy technologies such as the magnetic strips found on credit cards and transit tickets require physical contact to complete a transaction. For your local retail store this is not an issue.  For transit systems handling hundreds of thousands of commuters transactions per day the cost of maintaining those turnstiles that lie between you and your train is very expensive.  Contactless technology such as RFID requires no moving parts to complete the transaction.  The cost associated with refitting a transit system with Contactless ticking systems is an expensive proposition but the cost/benefit is increasingly more attractive.  The primary expense had been in maintaining proprietary hardware controlled by a single vendor.  With standards based Contactless technology the primary cost item is now the smart card…and they pass that expense along to the commuters.

Another form of low cost standards based “Contactless” technology that has been widely adopted for decades, and thanks to low cost imaging systems (e.g. Cameras on smartphones) is virtually ubiquitous, is called bar codes (more on this later).

So now we understand how the technology works and have identified a great application for contactless transactions that operate using near field communication technology.  NFC as it is now being marketed adds another layer of security and capability into the chips.  The physical interaction with the outside world however is exactly the same…and that’s the problem.

Contactless technology is a great fit for closed loop applications where a single organization controls the entire system (e.g. Transit,  security, immigration control).  However, NFC is being heavily marketed to address a not so clearly defined need for more secure retail transactions or data transfer between smartphones in an open environment with divergent technologies.  Mag stripe credit card machines and barcode readers are ubiquitous in retail environments.  Consumers are very familiar with the process of scanning a credit card and singing the little screen on the machine.  Self service checkout combines this process with the good old barcode technology and before you know it you are one your way.

Let’s try this with NFC.  First you need to know ahead of time that the retailer can handle an NFC transaction (good luck with that).  You would then need to launch the payment application for that specific retailer and hold it up to the reader.  All the while the cashier is looking at you and waiting for you to scan your credit card and the people behind you in line are wondering why you are taking so long.

By the way, many of those payment applications can also dynamically display a unique barcode on the screen of your smartphone that you simply place under the retailers barcode scanner.  The airlines already do this with electronic ticketing and it works great.

The value proposition for NFC in consumer retail is completely backwards.

The costs associated with NFC must be borne by the consumer and retailers.  Adding NFC chips to phones and credit cards is not free and those costs are passed along to you, the customer.  The bigger problem is the costs to retailers who will be required to upgrade their payment terminals and train in store associates on how the new systems work.  Retailers would also need to be prepared to provide on the spot technical support to anyone holding up the line because they can’t figure out how to open the payment app on their phone.  The first time I see someone complete a retail transaction using an NFC equipped smart phone I will stand in line and pay close attention (I may even time it so I can see how it compares to a standard credit card swipe).  I fully expect the second time it happens I will move to another line.

It’s fairly obvious that companies that sell NFC chips to mobile phone manufacturers and companies that make credit cards for banks stand to benefit near term.  What is not so obvious is the real reason behind the push behind NFC in the consumer payment business.  The simple truth is that the payment processing industry is very lucrative and tech companies and network operators want in on that business.

Every time a credit card transaction is processed the retailer pays a fee that is typically 2-4%.  Visa and MasterCard control just about everything that happens in the payment processing ecosystem from the plastic in your pocket to the point where money is exchanged with your bank.  With the advent of ubiquitous wireless connectivity and ever more capable smart phones network operators can completely bypass the legacy payment processing infrastructure.  Adding NFC into the mix implies that this process is more secure than swiping a credit card, completely ignoring the fact that hacking massive credit card databases is much more attractive than hacking smartphones at your local coffee shop.

Assuming that appropriate security and consumer protection mechanisms are place circumventing the legacy payment processing ecosystem may have value.  Companies like Square are doing just that in a way that is elegant in its simplicity.

I recently took my daughter to her first “real” concert.  Of course she wanted a t-shirt mark the occasion.  Once she selected the t-shirt the gentleman behind the merchandise table pulled out his iPhone, used the camera to scan a barcode, slid my credit card through a square dongle on the iPhone, and handed me the iPhone to enter my email address for the electronic receipt which was in my inbox before we walked away from the table.  The entire transaction was done in seconds and we didn’t even have to bump phones.

Square has created a discontinuous innovation that has value.  For the retailer they are now free of the traditional credit hard wired card processing machine.  For consumers the “process” of paying is pretty much the same but the convenience of paying by credit card in areas that used to require cash has real value.  NFC is a discontinuous innovation that does not have value to consumers or retailers.  Oh, and the purported problem with carrying all of those loyalty cards…no problem, what’s your phone number?

So why do I have do I have an issue with NFC?  I’ve been in the Tech industry for a long time and I am the co-founder of an RFID company.   My expertise spans the area in tech where NFC is trying to find a home.  I have NFC manufacturers who are familer with our RFID business and growing customer base who want us to push their products.  I also have friends and colleagues who have heard that NFC is “the next big thing” and want me to explain how it works.  In this scenario I can spend a great deal of time and money on something that delivers zero value.  For me it’s easier to write and article/blog that I can refer to and politely move on.

To sum up:

  • NFC is essentially a more secure implementation of RFID with a marketing budget.
  • NFC can deliver value in certain closed loop environments (e.g. transit systems) but adds cost and complexity and delivers no added value to consumers for payment or data transfer applications.
  • While NFC has found a home in Europe and the Asia Pacific region (primarily transit applications) there is no such demand in the US.

No value, no market, DOA.