Thursday, March 15, 2012

Will NFC End Up like 90's SET Protocol?

NFC faces multiple challenges as mobile Web solutions flourish

Mobile commerce is picking up steam as consumers are learning to take advantage of what it offers. Searching for and selecting the items you wish to purchase with just a few taps and clicks is both convenient and efficient, a must for today’s on-the-go consumers.

But looking for the items you wish to buy is the easier component of the shopping experience. The payment process to complete the transaction, on the other hand, has always been a worrisome part for both buyers and sellers. How can we make payments easily, quickly, and most of all, safely?

Easy, quick, and safe payments are what both near-field communications (NFC) and mobile Web payment systems aim to provide to consumers. However, NFC seems to be following in the footsteps of a massive failed project, the secure electronic transaction (SET), while non-NFC mobile App/Web payment systems such as PayPal’s are flourishing.

Leading the NFC movement are Isis – a joint venture between communications giants AT&T, T-Mobile USA, and Verizon Wireless – and Google Wallet.

Now Isis will only go online with two test markets in Austin, Texas and Salt Lake City, Utah, in April. Meanwhile, Google Wallet is pushing ahead. It has a strong retail strategy as its retail partners include CVS, Subway, and Walgreens. However, the project is dealing with limited availability as it is only available on Samsung Galaxy Nexus mobile phones from Sprint at present.

NFC uses chips embedded in smartphones and similar devices to establish radio communication with other NFC devices. Certainly, once the project gets off the ground, it has excellent advantages as far as security goes.

At present, however, the outlook for it is made less bright by the many similarities it has with an old project that is now widely considered to be a massive failure – the SET.

SET was a collection of security protocols that aimed to enable users to pay with secure credit card transactions over the insecure network of the Internet, by allowing the merchants to substitute a certificate for the credit card number of the user. Thus, the seller would never know the credit card number of the buyer, but the payment will be verified.

Its development, which started in 1996, was led by MasterCard and VISA.

Perhaps the biggest problem with SET (and the NFC) is the complexity of the nature of the system itself, requiring new hardware for the system’s implementation, which meant additional costs for the sellers – a cost that could prove to be too much for some merchants.

Additionally, both systems required modifications in the buyer’s mobile phone: installation of a client software or e-wallet for SET, and an embedded NFC chip for NFC. For today’s consumers who are used to having everything instantly accessible, this step can just prove to be incredibly inconvenient.

Lastly – and this, perhaps, is the most fatal of all – both systems faced competition from a simpler, lower-cost solution which was easy to implement. In the case of SET, it was secure sockets layer, or SSL. For NFC, it is mobile App/Web payments.

In fact, mobile App/Web payment systems are developing today at a much faster rate than NFC. Thus, companies might feel that they do not have the time to wait for NFC to achieve a firm footing, especially since they can take advantage of mobile payments right now.

For instance, there is Paypal’s Express Mobile system, currently one of the most popular checkout solutions for merchants. Wells Fargo, too, has recently launched a mobile transfer system where Wells Fargo customer can transfer money to another Wells Fargo or Bank of America customer or business using their e-mail address or phone numbers. This is very likely to develop into a full fledged payment system as its adoption increases.

And of course, there is Amazon’s Mobile Payments Service, which allows mobile developers to provide payment options through mobile Web sites and applications, plus a one-click checkout feature, which makes purchasing products really very easy, quick, and convenient.

This convenience is arguably the biggest thing for non NFC mobile App/Web payment systems have going for themselves. You don’t need to buy and install any hardware. You just need to sign up as a user. At the very most, you’ll need to download an application – something the online buyer is quite used to doing.

In addition, consumers might also feel safer storing their credit card information in a password-secure account online than in mobile phones, which could be stolen.

So by now, mobile App/ Web payments do seem to have a head start over NFC. The question remains, though: Will this head start be too much for NFC to overcome? Or will the intense research and development being put into NFC today by companies such as the formidable Google be able to steer it clear from the shadow of SET? After all, as Globys global marketing senior director Lara Alberts aptly pointed out, “If or when Apple’s next iPhone contains an NFC chip in it, the whole game changes.”

So we think the game is far from over. For now – only time will tell.

Yash Talreja, Independent Consultant

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