A year ago, Forrester stated that 2011 would–finally–be the year that Near Field Communications (NFC) began to matter. We predicted that dozens of millions of NFC devices would ship and that the market would start moving away from being niche, although it would still be years away from becoming mainstream.
Now that 2011 is coming to an end and it is once again the time for predictions, let’s look back at NFC’s year before we publish our report on mobile trends in 2012 at the start of next year.
I recently got confirmation from trusted sources that 35 million to 40 million would be a good estimate for worldwide NFC mobile phone shipments. After many years in which handset manufacturers claimed that they would have NFC devices in their product portfolio, 2011 was indeed a game-changer. Some flagship devices, such as the Samsung Galaxy S II, did not initially ship with NFC components in every country, but overall, the likes of Samsung, Nokia (NYSE: NOK), and RIM (NSDQ: RIMM) have embraced the technology; the notable exception is Apple.
While the figure looks impressive, this is still a small percentage of overall mobile phone shipments; less than 1 percent of consumers own an NFC device in the vast majority of countries around the world. The chicken-and-egg dilemma still exists, with many retailers continuing to wonder if they should invest in NFC point-of-sale (POS) readers if the installed base of devices is not there yet. Factoring in smartphone and POS readers’ renewal cycles, it will take a few more years before we reach mainstream usage of mobile services enabled by NFC technology. Why? Few services are available now; the out-of-the-box experience is still poor; and consumer education will take years. In 2011, there was lots of hype about Google (NSDQ: GOOG) Wallet, but at the end of the day, the offering’s reach is close to zero.
When it comes to payments, NFC doesn’t yet offer sufficient convenience to persuade consumers to change their habits. Swiping a credit card instead of waving it is not fundamentally different: You still have to enter your PIN for security reasons. NFC is mostly more convenient for small transactions that don’t require a PIN. The real game-changer is to add value before and after the transaction–enabling consumers to discover offerings via contextualized coupons and to explore new product and service information, and enabling companies to engage with consumers by providing loyalty points and rewards after buying a product. NFC is just one of the many technologies that can be plugged into a broader digital wallet strategy. This was exactly what PayPal had in mind when it announced its approach that leveraged different pieces of the puzzle, such as its acquisitions of RedLaser, Milo, Where, and Hunch; these will help PayPal assemble a compelling mobile digital wallet that can enter the offline payment world.
We’ll see more and more initiatives around contactless payments in 2012–and the Olympic Games in London will act as a marketing catalyst–but at the end of the day, contactless payments will not be the primary use case for NFC in the short term.
Most consumers using an NFC device in 2012 will more likely use it for device-pairing or data-sharing purposes than for payments. Why? Because it can work in a closed loop without the need for NFC infrastructure. Device manufacturers will offer NFC-based multimedia content sharing services. Usage is unlikely to be significant due to the low number of devices.
Beyond this, the use of NFC phones as transportation cards could help trigger more mainstream adoption; however, this market is fragmented, and it is likely to happen only in specific areas. It will be challenging to quickly roll out NFC services in very dense urban areas like Paris, London, or New York–despite efforts like RATP’s Navigo or Transport for London’s plans to use NFC cards with its Oyster readers.
NFC will also increasingly be used in access cards–whether it’s for consumers in hotels (the likes of IHG and Accor are experimenting with the technology) or for employees in office buildings. Consumers can also use it for service discovery by waving their phone over any billboard or printed document that has an NFC tag.
In short, product strategists should stop focusing on NFC as just a contactless payment technology but should instead anticipate new uses for the technology that enable consumers to interact with the environment around them.
That being said, NFC will not be restricted to smartphones; product strategists will progressively embed it in other connected devices. The recent strategic partnership between Intel (NSDQ: INTC) and INSIDE Secure opens the door for new use cases–mostly within offices or at home and on laptops or tablets. Think of using a contactless card or phone for authentication purposes on a laptop, as part of a security layer for consumers transacting on eCommerce websites, or to allow employees to access specific secure areas.
Thomas Husson is a Principal Analyst at Forrester Research serving Consumer Product Strategy professionals. Follow him on Twitter at @thomas_husson
This article originally appeared in Forrester.