NFC technology, designed for usage in mobile phones, uses a short-range radio technology, which transfers data at up to 424 Kbps. It is a wireless communication technology that requires two NFC-enabled devices to be at a short range of less than 10 centimeters in order to perform a transaction or to transfer data.
The likes of Visa and MasterCard have already entered the market with products such as PayPass and Visa Paywave. The technology has now started to gain traction in the mobile commerce space for real-time marketing, merchandising and loyalty programs.
Although NFC is still at a nascent stage of adoption in India, it is gaining ground across sectors for enabling cash-less transactions.
Gaining acceptance
Leading mobile phone manufacturers—including Samsung, Nokia and RIM—have already started integrating the technology into their handsets. While Samsung has its Galaxy S2 and S3 smartphones that support this technology, Nokia has NFC-enabled handsets in the sub Rs 5,000 range. The company is currently running a pilot project using the technology, where it is familiarizing users with the concept of downloading data by just bumping one device with another. Nokia has tied up with PayMate to implement the latter’s solution.
Many banks, mobile network operators, vendors and independent companies are already implementing this technology and undertaking trial runs. One of the leading telecom service providers, Bharti Airtel, also launched prepaid cash cards in India—the Airtel Money service—allowing its users to employ their mobile phones for making payments.
According to Gartner, the mobile payment services are expected to reach $245 billion in value worldwide by 2014 and mobile money users are expected to total 340 million, about 5% of the global mobile subscriber base.
“We want to scale our customer base substantially and develop an active transacting base with usage across different categories including food, entertainment, travel and utility payments across the country,” said Sriram Jagannathan, CEO, Airtel mCommerce.
The scope of mobile payments in India can be analyzed with the help of statistics: the country has over 900 million mobile subscribers but just 240 million individuals with bank accounts, 20 million credit cards, 88,000 bank branches, and 70,000 ATMs. Of the households without a bank account, 42% have at least one mobile phone. As per the latest RBI reports, banking transactions through mobile phones have more than trebled to Rs 286 crores during May 2012, up from 91 crores in May 2011 on account of higher number of users with handheld devices.
Impediments to growth
Despite this, the technology has failed to appeal to a large part of the industry. The reasons are many, the foremost being lack of awareness amongst users. NFC adoption for mobile payments is expected to remain low largely because the technology requires a change in user behavior. An average Indian spender still does not use mobile phones for making financial transactions.
“The proliferation of mobile banking depends largely on increased consumer awareness regarding the benefits of mobile banking along with assurance on the perceived security issues and threats,” said Srinivas Nidugondi, Head of Mobile Financial Solutions, Comviva.
“Since it is a new technology, consumers need to be educated on how it works,” he added. The end customer will use it only when the interface is easy and transparent and the backhaul is in place.
Additionally, NFC requires effective collaboration between banks, mobile carriers, card networks and merchants to create platforms that seamlessly support this technology. Interoperability is going to be crucial for the widespread adoption of this technology, enabling users to benefit from NFC services regardless of the operator network or device that they use.
“NFC will not become a mainstream technology before 2015. In order to get consumers on board, payment solution providers need to address ease-of-use for users and ease-of-implementation for customers without compromising on security. They also need to increase user awareness, extend the service coverage and address ease-of-use to appeal to end users,” said a Gartner report.
NFC will become a powerful mobile tool only when the majority of mobile phones are equipped to read NFC tags. Although, some of the popular mobile devices in the market are NFC-enabled, most mobile phones in use in India do not support the technology. As a result, not many users are capable of using the technology to transact. Moreover, the low user base has kept merchants from deploying terminals to facilitate these transactions.
“Mobile phones will eventually become the point-of-sale device. However, NFC’s mass adoption is still far off,” said PayMate’s Adisheshann.
The Indian market has tremendous potential for mobile commerce given the penetration of mobile phones coupled with the existence of a vast unbanked population. As mobile payment systems grow, it will propel the use of NFC technology as well. However, it is unlikely to emerge as the frontrunner in the preferred list of mobile services anytime in the near future. Indian users are still more comfortable with cash payments and are only just getting comfortable with using credit cards. It is crucial to set up a secure infrastructure behind NFC for it to be widely adopted by Indian consumers. Trials and POCs are afoot but its early days yet.