I had an interesting discussion at a conference this week regarding mobile payments and in particular NFC payments (including contactless payments in this definition).
This technology has been touted as the next big thing in payments for the last few years. It has been consistently promoted by the industry, yet has struggled to gain wide acceptance in most markets. Reception has been lukewarm and customer adoption slow.
The discussion started me thinking…why… it is after all a ‘modern, high tech solution for the modern world’.
In the real world of commuting to work, dropping kids off at school and grocery shopping, where most of us live, much of this comes down to utility. Ie how useful this is vs other forms of payment?
Looking at other forms of payment, through the ages, can help to illustrate the challenge for consumer adoption.
Age I: Cash. For many years physical cash has been widely used for payment. It has great utility.
- It is a store of value and means we do not have to exchange goods (or goats!) for grocery shopping
- It is fast. Cash is widely recognised, and buying something with cash is quick and easy
Fraud and counterfeit can occur, but with fraud technology it has remained manageable. There is still faith in most currencies…. it works…. consumers like cash, and it has remained popular for thousands of years.
Age II: Plastic payment and credit cards. This was a new challenger to the system of cash in the late 20th century.
Initially it was slower than cash for payments and often with an annual fee, more expensive. Acceptance rate varied whereas cash was accepted everywhere.
Unsurprisingly initial adoption was slow, the utility vs cash was low. Something needed to change and a solution came in the form of new product features.
- Loyalty programs were introduced with points generated every time a customer spent. It was wildly popular.
- Revolving Credit. Customers were allowed to borrow and pay down balances over time. It allowed purchases to be made today and paid for tomorrow. It was also extremely popular.
Both of these significantly increased utility and helped drive credit card adoption for some consumers segments. It arguably helped build much of the infrastructure we see today.
Even with these benefits however, for many consumers, cash was still considered more convenient until the late 90’s.
Then at the end of the 20th century, a single factor tipped the balance. It drove the need for us all to have plastic in our wallet. It was internet and in particular online shopping.
All of a sudden consumers now had access to a wider variety of goods at better pricing and an essential requirement to access to this marketplace? A plastic payment mechanism (it is after all very difficult to check out online using only cash).
This single development massively increased the utility of credit cards and drove adoption to new heights. We now all ‘have to’ have one.
Age III: Mobile payments and NFC? So what do these lessons teach us regarding the mobile payment and NFC infrastructure.
In many ways the industry seems to be in a similar situation to the early days of credit cards (or 3D TV for that matter). It is a ‘cool’ new technology that is struggling to find a need.
After all if you need to be physically there to buy something (you and your phone) cash is arguably quicker and more convenient.
Utility remains at the heart of the issue and until this is solved the format will most likely struggle.
What will be done. This is an issue product and marketing departments are working overtime on. Most likely, it will be a marketing solution that first generates the need, increasing utility for a segment of the population.
For wider adoption however we need to look for that structural change, the one that makes it a must have for all of us….
(I am not 100% sure on what this will be, however my money is on this starting with convenience for transit/transportation linked with increasing fuel prices! the ideas and answers will be in the data!)