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Summary:

The COO of mobile payment startup Square, Keith Rabois, thinks that the mobile payment technology Near Field Communications (NFC) has no value proposition for consumers and merchants, he said at GigaOM’s Mobilize conference on Monday.

Keith Rabois, COO of Square

Keith Rabois, COO of Square	The COO of mobile payment startup Square, Keith Rabois, thinks that the mobile payment technology Near Field Communications (NFC) has no value proposition for consumers and merchants, he said at GigaOM’s Mobilize conference on Monday. “I’ve never met a single merchant in the U.S. who says I want this NFC thing,” said Rabois in an interview with GigaOM founder Om Malik.

NFC is a short-distance wireless technology that’s been under development for years, and could be a catalyst for mobile commerce. Some researchers are predicting that by 2014, one in five phones will be NFC-enabled. Companies that have invested in NFC include web firms like Google, blackberry maker RIM, carriers through their network called Isis, handset maker Nokia, chip make NXP, and many others.

But despite the growing ecosystem around NFC, Rabois questions how useful the tech will be to consumers and businesses, and said while NFC makes good PR and cocktail party chatter, it doesn’t offer a value proposition. Even Google’s work with Google Wallet is meant to help Google track behavior, and enhance their business, not to enable small businesses, said Rabois.

In contrast, said Rabois, we’re trying to help small business retain each customer, and have the same level of analytics as larger businesses but at a low cost. It’s hard for small businesses to compete at this level with the large companies, said Rabois. Square focuses its network on small business transactions, like a local merchant selling wares at a farmers market.

Small business owners can use the square plug-in hardware for their iPhones, and then an app that helps them securely make a payment digitally. But don’t expect Square to be a platform or API any time soon — Rabois said that because they are trying to make the transaction as simple as possible, it might not lend itself to an open API.

In addition to rejecting NFC, Rabois doesn’t seem too worried about competition from the bigger players. He called PayPal’s brand “atrophied,” and said that Square looks inward at its applications and services, not outward at competitors. The next new service to come from Square will roll out in October, and December, said Rabois.

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  1. That’s a silly stand for Square, I’m guessing the VCs are already ruining the company. NFC is just a physical medium, and Square should be agnostic on it, at worst, and enthusiastic about it at best. It would allow them a vehicle for avoiding credit cards altogether, and building out their own proprietary payments network.

    So how many directors from HP are now on Square’s board? I know they added some politicians, but usually they just add their name and collect their options.

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    1. Seriously. Sounds like more of a political stance than a business argument against NFC. Rabois should simply hop on a plane and visit Korea or Japan and see how little value is it for the consumer. The response might be, “Oh, I was only referring to merchants… in the U.S.”

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      1. Jean-François Amadei Monday, September 26, 2011

        I was thinking the same, an another one who still thinks that the world = California.

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      2. Not only is that correct, but you really shouldn’t depend on what the consumer asks for (I doubt if many know what NFC is). If Apple did that, there would be no iphone or ipad, two products that not only may generate $60-70 billion in revenue just for Apple this year, but have created giant new markets in just a few years (the ipad only took one).

        Maybe because Rabois is the COO and not the CEO, he lacks the vision to figure out what customers will buy before they ask for it.

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      3. I think if he did indicate only merchants in the US he would be more accurate. The dichotomy here is the early adopters for this sort of technology would be geeks and they ironically will be leery of the security issues surrounding the platform and so you end up with NFC being a non sequitur for the hype and corporate enthusiasm floating around for it in the industry!

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    2. Dead-on analysis on the stupidity of Square’s comments, and their likely source. Watch how fast he swerves when Apple goes all-in on NFC.

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    3. I agree with others here. I think he’s missing the big picture. Maybe he’s not revealing the true value proposition for Square, which I would think fits nicely with NFC.

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    4. Stephan Branczyk Tuesday, September 27, 2011

      This is just a smart Branding Positioning Stance, which is designed to attract small to medium business owners.

      Inside of Square, they’re actively working on NFC.

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    5. I was an early fan of PayPass, arguably the best-known NFC payment platform among retailers, but it is amazing that it has been adopted by so few merchants during the last ten years. NFC is basically a replacement for a card swipe with little other upside, but a whole lot of downside in the form of its inherently unsecure nature. With Congress and the FTC cracking down on companies that inadvertently leak confidential buyer information, most merchants have ample reasons to skip NFC for now.

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  2. the only word or “TLA” that comes to mind is “FUD”.

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  3. Rabois seems blinkered, looking only at what’s in it for businesses. NFC’s major value prop is for consumers – making payment easier for them. If consumers embrace it, then businesses need to follow. Rabois seems to think it should all start with the merchant – with no consideration of the impact consumers may have.

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    1. +1. Myopic view shrouded by self-interest.

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  4. this article literally made me stop and say.. “is this guy an idiot?” If he can’t see the value.. holy mackerel ..he should not be COO.

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  5. As a consumer who is usually an early adopter, NFC is something that I want no part of.

    It is trying to solve a problem, that doesn’t exist. “Oh, I have to swipe my card.” Such a rough life that people have.

    That is a really weak value proposition.

    The downside to NFC is that it will make the theft of your personal financial data much easier for cyber criminals.

    No value + big downside = seems like a really bad technology to invest in.

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    1. Here in Europe we generally insert rather than swipe our cards as they use the embedded smart card (Chip & Pin) rather than the woefully insecure magnetic stripe. I wonder what Square plan to do about those now they’re gaining traction in the US, as it’s hard to imagine the physical form for a reader, nor a software PIN entry system on a relatively insecure platform. If they don’t cater for this, how many customers a merchant has to turn away (because Chip & Pin is the only activated option) before they revert to dedicated terminals? My guess is not many.

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    2. Maybe you would like to expand on the idea on how it is easier for personal financial data to be obtained?

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      1. There have been cases of mobiles being hacked and personal photos “stolen”. What makes you think that it is not as easy to obtain financial data

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    3. As I see it, NFC has one massive advantage over credit cards : better information about my purchases. In Europe, the only information I can get about my purchases is when, to who (often with strange trade names for smaller shops) and how much. No geo-mapping to help me notice unusual usage patterns, no ability to track what I’m buying as I pay (leisure, business expense, food…), and not even any decent tools to see how I’m managing my money month-to-month.

      NFC also brings a new dimension for small cash transfers. Like Sam, my card is only Chip&Pin, and lots of retailers in France only allow credit cards to be used for more than 15€ in purchases. Or in other words, no chance of that happening at the bakery or the magazine stall. NFC-enabled registers could make that a thing of the past. By treating amounts below 15€ differently from amounts above 15€ (see the Moneo experiment), small cash transfers to merchants are enabled without certain bank checks that are done for Chip&Pin cards (making it more like a swipe card). Ergo, lower costs for merchants, more convenience for consumers… It’s win-win.

      Also, vending machines, train passes on NFC, grouped voucher cards and other types of bonus/reward information cards… NFC has a long way to go before it even fills a fraction of the promise it has, but it could become ubiquitous just as fast as the iPhone and the “app” ecosystem.

      For small merchants there are the same advantages as credit card readers : no cash management, reduced risk of physical theft, speed of transaction, all in a device they already need to have (telephone). Personal financial information theft might be a risk, but I haven’t noticed Japan shying away from NFC because of this risk, nor it being a massive burden borne by users. Even so, I don’t see how Square is more “secure”, since their card readers can easily be used for skimming cards.

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      1. Just a question – If I use mobile banking, but don’t use NFC to make my actual purpose – why is that “less data”? Is it simply those transactions that are less $10 or $15 are lost on card but captured by NFC? Thanks

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    4. Stephan Branczyk Tuesday, September 27, 2011

      In the San Francisco Bay Area, NFC (NFC 1.0 at least) is already an integral part of my commuter life. I already use my (NFC-tagged) Clipper card for the Bart, the bus, the muni (subway), (and also the AmTrack train and the Ferry if I needed to). Gone are the days of trying to find the exact change before I can catch the bus, or having to worry about asking/buying a transfer. I go pretty much anywhere in the Bay Area, with just one single card. And it’s not a question of being an early adopter, or being cool or whatever, it’s just a question of convenience. Now, I can just fast-track my way through the gate, completely by-passing the change machines and the homeless peddlers, and now I can enter through the back door of a Muni bus when there are too many people in the front of the bus unwilling/unable to move to the back.

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  6. Peter Fleckenstein Monday, September 26, 2011

    Rabois is correct in stating that NFC has no value proposition for consumers – Try this on: Map out the steps(every one)for an NFC transaction and then compare that to using the wallet in your pocket or purse. That’s just the start. Then you have to factor in security, ubiquity, cross platform (hardware & software)etc. There’s no value prop. There is nothing out there that adds value for the consumer. Nothing.

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    1. The point is our smartphones are replacing more and more things from the real world. Today it’s credit cards, tomorrow it’s car keys, home keys, ID’s, documents, and so on.

      Instead of carrying all this extra physical stuff with us, it will all become digital, and it will all be inside our smartphone. Mobile payment is just one of these.

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      1. And when my battery dies on my smartphone, guess I can’t get take my car to go home, if I take a bus, I won’t be able to get in my house anyway… And I can’t rent a room and recharge my phone because it is also my only means of payment.

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      2. Stephan Branczyk Tuesday, September 27, 2011

        @Daniel S,
        The NFC standard demands that the NFC chip in the phone can get powered by the induction coil from the reader (so it works when the phone’s battery is dead), so in the case of a car, it would really have to be the car battery that dies that prevents the car from opening/starting in the first place.

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    2. Ok, let’s try this. First, in a supermarket, buying for 120€ of goods, then in a bakery, buying for 3€40 of goods.

      Supermarket : Take credit card out of pocket (1), put credit card in terminal (2), wait (3), put in PIN code (4), wait (5), remove credit card from terminal (6), put credit card in pocket (7) or Take phone out of pocket (1), click on NFC payment app (2), wait (3), put in PIN code (4), wait (5), touch terminal (6), check payment (7), put in pocket (8). Roughly the same, and maybe even faster if your credit card is in a wallet, and depending on the speed of your phone vs. the terminal.

      Bakery : “Sorry, credit cards can only be used for purchases over 15€. There’s an ATM on the other side of the street though.” or exactly the same thing as before.

      NFC can be different from Credit cards because you can “bypass” bank checks for small amounts (like Moneo does, but with automatic reloading when the account is depleted/low), but retain the secure payment process for larger amounts. This means that small merchants (bakeries, for instance) won’t have to pay a fee each time a NFC payment is made, but only for those above 10€ or 15€. Digital payments reduce cash management costs & errors, risk of theft or employee fraud, and can process payments much faster than the buyer and the seller counting coins. Banks should push NFC adoption because it means less “immobile” cash in people’s pockets and piggy banks, as well as less cash waiting in registers to be counted and returned to the bank overnight or in a few days. Given that there are over 100 Billion € in coins and small notes (5€, 10€, 20€) in circulation, it’s reasonable to expect that even a 10% decrease would repay several times over the amounts banks and payment companies would have invested to roll out widespread NFC terminals.

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  7. I’ll reiterate a comment I made on Ryan Kim’s article on mobile payments. First introduced in 2004, mobile wallet phones are popular in Japan and supported by all mobile operators. They use Sony’s contactless (NFC) FeliCa ICs. The growth of the service over the years suggests there can be value.

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  8. Keith is correct in his criticism of NFC today. A good value proposition, to a retailer, should mean the technology reduces the cost of sales compared to the alternative, or increases the volume of sales. Not one of the critical commenters here have yet stated how NFC helps. It should help as transactions become more frictionless than cash, but someone needs to put a $ value on that for retailers.

    Square has a strong value proposition to small retailers: they make credit card purchases possible where they were not. I suspect this will only last a few years though.

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  9. Tetsuya Ohashi 大橋哲也 Monday, September 26, 2011

    I’m glad to invite Mr.Keith Rabois to Japan & to introduce NFC business in Japan form the payment industry’s stand-point.

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  10. Vladimir Rodionov Monday, September 26, 2011

    Seriously? I would jump on the train only because Google is there already.
    NFC is not only for mobile payments btw. You can exchange short messages with everything what has NFC passive chip (<< $1) attached to it.

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