Blog Post

Square COO: There’s no value in NFC

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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62 Responses to “Square COO: There’s no value in NFC”

  1. Bob Ofenstein

    Many of the comments here are referring to RFID and not NFC. NFC requires a two way RFID powered IC chip, requires a microprocessor with NFC operating system, requires a user interface and PIN Code entry pad, requires that information can be communicated in either direction, and payment requires additional management and phone verification features be built into the infrastructure. So, that was NFC. RFID on the other hand requires a “25 cent sticker”. Many of the “I want to pay with my phone” use cases that people are referring to as being proof of the value of NFC could be done by placing that 25 cent RFID sticker on the back (or interior) of your phone. The use cases that are popular in Japan are RFID (not NFC). What causes the confusion between NFC and RFID is the fact that NFC has ONE mode that is called “RFID emulation mode”. So this HUGE change to phones and the entire mobile and banking infrastructure is actually being done for a primary use case (retail payment) that could be done with a 25 cent RFID chip taped inside your mobile phone. Essentially, the difference is that NFC is acting like a dynamically selectable RFID sticker. You could have an RFID handshake for credit card #1, press a button and bingo… it can now have an RFID handshake for credit card #2 ! This is what the real NFC is giving us! So… is it worth the hassle to this “multi-RFID card” functionality ?
    NFC has other modes which let you transfer files (mmm… I thought that was a major use case for bluetooth??). These enable use cases like business card exchange, and passing money to a friend. Essentially NFC means that you have both an “RFID sticker and an RFID reader” in your phone. There are several companies (for example Naratte-Zoosh and Tagattitude) that use a speaker/microphone data exchange technology that does the exact same thing with no special hardware. That is what the SQUARE guy is referring to… he doesn’t think that the RFID reader use cases are that valuable to the average consumer.
    So, in my opinion, the only reason that NFC is still being promoted is because it has the potential to be the pipe that dollars flow through. Boardrooms like that idea.

  2. Paul Brewer

    What about Octopus, in Hong Kong?

    (Not for dinner, the card…)

    It started being a payment mechanism for the subway, and grew to include coke machines, bus, taxi, and then grocery stores and other small merchants. HK is a busy place amd there are often lines, and being able to pay by tapping your wallet or purse against the reader sped up customer service considerably.

  3. Seems to me that the only thing Square would have to lose by adopting NFC would be the sale of their little hardware dongle. If that’s the sole or majority source of their revenue, they have a very bad business plan in place. One would think that, as RFID credit cards (such as Citi MasterCard PayPass cards) and NFC enabled devices become more common place, it would severely benefit them to adopt NFC capability and reduce the expense they incur on manufacturing the hardware piece – just keep that thing around as a legacy device for users whose phones aren’t NFC enabled.

    NFC is just the latest evolution of RFID. There was a time when people said that RFID wouldn’t take off, or that it was dead on arrival. Then Mobil introduced the SpeedPass – just wave it at the pump, and your gas purchase is done. A lot of people took their business to Mobil simply and solely for that little dongle, and a few others found themselves trying to wedge some crow in their mouths alongside their foot.

    Bottom line — NFC is going to be an accepted, adopted, and widespread technology on into the future (at least until something newer and better replaces it). As a business that would benefit from adopting it, you ignore it today at your own peril.

  4. Jay Riley

    As Steve Jobs points out, “It is not the consumer’s job to know what they want”. There are many technologies that the consumer will not understand until they see it demonstrated. That this individual does not know anyone who sees value in NFC is anecdotal, and may only prove that he does not know anyone who understands its potential. The industry almost universally predicted Apple would fail in their attempt to enter the cell phone market. Now they own the market.

  5. I’ve had a passive NFC chip enabled debit card in the UK for a couple of years. I’ve never found a retailer who supports it to even try it once (if anyone knows of a UK retailer let me know). So it would appear that UK merchants aren’t keen either which seems to support the thrust of the article irrespective of the fact that other regions have embraced the technology. So will mobile devices with NFC change this? We’ll have to wait and see. However, what I suspect is it will come down to what the merchants get charged (equipment and transaction costs) as to whether they wish to support NFC. If everyone in the transaction chain wants their cut of the revenue such that it is more expensive per transaction for merchants and reduces their margin (particularly on low value low margin commodity items) then merchants will not support the technology. Much like many retailers do not support Amex or Diners Club cards because they are charged more per transaction than say Visa or Mastercard.

  6. Eddy Cormon

    Of course Keith Rabois sees no benefit in NFC.
    As he needs to promote his insecure payment system on an insecure platform (iPhone) using an insecure transmission (Wireless).
    NFC is just secure.
    Square will be capturing fraud like flies.

  7. Kevin Pierce

    Waaaaaaaaaa? I guess I would feel this way too if I’d poured a ton of time and effort into a little pieces of hardware that will not be needed in a couple years. De Nile ain’t just a river.

    • Pranav Kariwala

      Kevin P very well put… Either Square does not have a vision to think beyond what they have in the market or they are just doing their bit to distract the rest of the market

  8. Brendan Coen

    I am always amazed when people cannot understand why companies take such stances, the COO’s comments are nothing but PR talk. If NFC takes off in 3-4 years then Square’s little dongle gadget become antiquated and their value proposition is supplanted by better technology.

  9. I love the fact that his #1 business target are farmers markets – and he doesn’t believe in finding out what his competition is! Also am I the only person who has to make a choice when I leave home without a jacket – wallet or iphone+credit card. It is obvious that the smartphone will win out & Rabois will end up serving apples at the farmers market.

  10. Ahem, not the most objective opinion I might add; hard not to notice the conflicting interest (the elephant in the room): NFC payments aim to replace plastic, no plastic = no Square & end of Square’s business model.

  11. I’ve not been persuaded Square is tackling the non-U.S. market anytime soon, if ever. So while the comments about Japan and Europe are interesting, I don’t think they much apply. Rabois knows those are different places than the U.S.

    It is simply true that the consumer benefit of NFC vs. a card swipe does not really seem to exist. And this bizarre notion that sometime soon we are all going to walk out of the house without wallets and keys because our phone has everything we need — while lovely in theory — has no chance of being realized soon.

    That said, there will be millions upon millions of NFC phones and increasing numbers of NFC terminals and people will use them. It’s going to happen.

    Square’s point is that it’s not really adding value for anyone in particular and they intend to add value in other ways. Good for them.

    • Alexander Lyon

      If Square isn’t going to tackle the non-US market, the investors are going to be between a rock and a hard place very soon. I can’t predict how fast NFC adoption will be in the USA, but given that Smartphones are already around 40-45% of the entire subscription phone market, and they have an average renewal period of two years, things could change very, very fast. Particularly if Apple get in on the game.

      Square can say they intend to add value in other ways than NFC, but saying NFC has no advantage is a big, big call. All Square would need to be in the news for all the wrong reasons is for someone sufficiently savvy to get their hands on a Square reader and use it to skim cards (something that’s apparently not even that hard… ). I don’t know how often small companies recover from bad media attention, but the potential is there, particularly when in the other corner there’s a solution supported by major players (Apple? Visa? Mastercard, Google and Citi are already in) that’s pushing security as a key feature.

  12. Peter Coster

    I see how at the moment there is not a strong value for the consumer if you just look at the payment side but there is a wide vareity of benefits to NFC outside of this. For example, elderly touching pictures of loved ones to call them, family members haring photos with a touch of two phones, music lover coming home and touching portable music player to stereo to transfer the music s/he was listening to on head phones. Then there is the ease of using one device to cover multiple applications. Your (smartphone) is touched to a tag near your bed to set it to silent mode and activate your alarm. Touching a N-Mark on your dash board to get diagnostics on your car that you then transfer to your local mechanic/JAF/RACV/AA to get remote problem solving. Or to touch your pedometer/blood pressure monitor/other health device to help keep track of your health performance. Here w start to see great consumer benefits of NFC. Not to mention the fact that on average people realise they have lost their phone in 5 minutes over the 45 minutes for a wallet (and card). When it comes down to it, Square is a payment solution, NFC is a lifestyle solution.

  13. Vladimir Rodionov

    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.

  14. Jeromy Evans

    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.

  15. Steve Crowley

    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.

  16. Peter Fleckenstein

    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.

    • 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.

      • Daniel S.

        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.

      • Stephan Branczyk

        @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.

    • Alexander Lyon

      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.

  17. 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.

    • Sam Johnston

      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.

    • 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.

      • 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

    • Stephan Branczyk

      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.

  18. 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.

  19. 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.

    • Bernard Moon

      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.”

      • 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.

      • 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!

    • Douglas Crets

      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.

    • Brian Hayashi

      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.