TECHNOLOGY

  • 2015 will be an inflection point for NFC-enabled in-store payment
  • Largest card issuers in the UK likely to activate NFC-smartphone payments by end-2015
  • Security should be a key concern for all players in the NFC space

By the end of 2015, about 5% of the base of 600-650 million near-field communication (NFC) phones will be used monthly or more regularly to make contactless in-store payments. This is still relatively niche, but a significant increase from mid-2014 when usage was at very low levels.

Deloitte expects that 2015 will be an inflection point for NFC-enabled in-store payment, as it will be the first year in which the prerequisites for mainstream adoption – satisfying financial institutions, merchants, consumers, technology vendors and carriers – are sufficiently addressed. Consequently we expect the largest card issuers in the UK and the majority of developed markets to have activated NFC-smartphone payments by end-2015.

NFC payments appear to be beneficial for financial institutions (card issuers and banks), NFC in-store phone payments offer continuity and improvement to their business models. The core advantage with any contactless smartphone transactions is the potential for greater security, when payments are made with phones featuring either built-in (via hardware or software) or SIM-based tokenisation capability.

Furthermore, merchants may benefit as NFC-equipped phones can enable fast and, with some systems, high-value transactions.

For consumers, using NFC-equipped smartphones to make payments will be adopted only if it can make the payment process simpler, sleeker or provide specific incentive in the form of digital coupons or discounts. One such reason may be that some contactless smartphone payment systems' spending limit can be the same as the account holder's credit or debit card limit. By comparison, contactless cards typically have a payment threshold (typically about £20 in the UK) and a transaction limit (the number of contactless payments made) before additional identification is required.

The multiple components that enable NFC-smartphone in-store payments have been falling into place over the last few years and some barriers to mainstream adoption have been removed, namely:

  • most smartphone owners have already submitted their credit card details so as to be able purchase content
  • millions of UK consumers have become steadily acclimatised to using their contactless cards to make purchases or to access transport systems
  • using a fingerprint reader has become an everyday action for approaching 100 million individuals worldwide using phones equipped with a fingerprint reader. So for smartphone users who already have credit card data linked to their phone, have made contactless payments and are accustomed to submitting a fingerprint to unlock their phone or authorise an app purchase, submitting a fingerprint reading to authorise a contactless payment should not feel unfamiliar.

We predict that the existence of tens of millions of contactless credit and debit cards should not constrain the usage of NFC-enabled smartphones as an additional means of payment in the UK.

Implications for business

Customer education and marketing will be essential to increase awareness of the ability to pay using a phone.

Handset vendors can differentiate their devices through the inclusion of components, such as a fingerprint reader, or a tokenisation engine, that would enable contactless payments. These functionalities need to be offered as part of a payment ecosystem, and be easy to use.

Over time, other contactless processes such as premise entry and exit could be incorporated in a handset; and contactless payment should be combined with other processes at the point of transaction, such as collection and redemption of loyalty points.

All players should consider how contactless smartphone payments could be made even more secure. One possible way of doing this would be to use the location data routinely collected by smartphones as a security check. Deviations from a normal purchasing location could trigger a request for further verification, such as PIN entry.

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