NFC + Retail = Fail

Amidst all the legitimate news coming out of Mobile World Congress in Barcelona last week was this (justifiably overlooked) little trial of Near Field Communications, better known as NFC. A consortium of the technology’s backers gave 400 attendees Samsung handsets that had been loaded with airtime and about $100 to spend at local businesses. The failsafe scheme will enable NFC proponents to call the trial a success, as The Register wryly noted.

Indeed, “successful” trials of NFC have become as commonplace in mobile as dropped calls and novelty smartphone apps. Nokia was among the first to pursue the technology with a trial at a handful of Dallas-area retailers in 2003; since then a host of mobile players and financial institutions have toyed with the stuff around the world.

But NFC’s supporters have failed to lay the foundation for any viable ecosystem in the retail world, preventing the technology from even leaving the gate. Retailers have yet to be convinced that investing in NFC readers will pay off, giving manufacturers no real reason to include the technology on their handsets. And because there’s no real added value to consumers — who aren’t willing to pay a premium for the privilege of using their phones at the sales counter instead of reaching for their wallets — there’s no room for carriers and manufacturers to create a new link in the value chain. Which is why they haven’t invested to put the chips in their phones in the first place.

Oddly, analysts continue to produce confident forecasts regarding NFC. Juniper Research recently predicted the technology will explode in North America and Western Europe by 2014, when one in every six mobile subscribers will own an NFC-enabled device. Yankee Group is equally optimistic, predicting a “rapid rise” in NFC usage that will see nearly 5 billion transactions globally by in the five-year span ending in 2013.

Those rosy outlooks belie a couple disconcerting recent developments, though. China Mobile — which, like every Chinese carrier, is government-owned (and therefore extremely influential) — has actively begun backing RF SIM, a competing technology that has the advantage of working in every existing handset that uses SIM cards. And in a move that drastically underscores NFC’s lack of traction, Nokia last week scratched plans to put a long-awaited NFC handset into production, claiming “the consumer experience was not what it needed to be.”

That’s not to say that NFC has no future, however. The technology is gaining ground in emerging markets, where it brings modern-day convenience to users who often have no bank accounts. NFC is already powering peer-to-peer activity that is enabling both money transfers and small business transactions, spurring commerce in undeveloped regions. Also NFC could be extremely useful in supporting specific applications like mobile ticketing, which is expected to ramp up dramatically in the next few years. Indeed, the projected surge in ticketing is linked directly to NFC, which can ease consumers’ hassles in receiving and redeeming tickets on their handsets.

But those scenarios are based on bringing added value to consumers, vendors and financial institutions. That’s not the case in more mature markets, where it adds little or no value for consumers and carriers at the retail counter. And while some have proposed NFC-enabled smart posters and other proximity-based marketing programs, such efforts are already being powered by Bluetooth — which, of course, exists in a wide range of handsets already on the market. Given its flexibility and broad base of support in the mobile industry, NFC is sure to be key for some niche uses and as a foundation for m-commerce in emerging markets. At modern-day retail counters, though, it’s simply a solution in search of a problem that doesn’t exist.

Question of the week

Will NFC ever gain traction with mobile transactions in mature markets?