As Adoption Lags, Gartner Shaves 40% Off Its NFC-Based Mobile Payments Forecast

Lackluster adoption has prompted a major research firm to make a sharp downward revision of its five-year projection for mobile payments based on near-field communication (NFC) technology. Worldwide NFC payments volume will reach $22 billion by 2016, down 40% from the original forecast released a year ago, says Gartner Inc. in a report released this week.

Overall, the Stamford, Conn.-based research firm is still projecting robust growth for NFC, a two-way radio-wave protocol that allows consumers to use their handsets to make point-of-sale payments and receive and redeem rewards. Global NFC volume will balloon nearly nine-fold, from $4.7 billion this year to $36 billion in 2017, the firm says, with growth accelerating after 2016. But it will account for a small fraction of total mobile-payments volume—2% in 2013 and 5% in 2017.

The reasons for Gartner’s substantial reforecast have to do with slow uptake of NFC by consumers and merchants and missteps by Google Inc.’s Google Wallet and by Isis, a joint venture put together by the largest U.S. mobile carriers. Both initiatives were expected to promote NFC payments nationally but instead have stumbled.

Launched commercially in the fall of 2011, Google Wallet went through a major overhaul less than a year later, and another one is purportedly on the way. Earlier this year, the Google executive who ran Wallet left the company. Meanwhile, Isis was expected to launch in Austin, Texas, and Salt Lake City last summer but didn’t go live in those cities until October. Isis has not disclosed numbers but usage and acceptance are said to be weak.

“We have lowered the forecast of total [NFC] transaction value for the forecast period due to lower-than-expected growth in 2012, especially in North America and Africa,” says Sandy Shen, research director at Gartner, in a statement.

Still, there are promising signs for NFC, according to other research also released this week. All major handset manufacturers with the notable exception of Apple Inc. now offer phones with NFC chips, according to Sweden-based NFC researcher Berg Insight. The firm says 140 million NFC-equipped devices shipped last year, while the global installed base reached 170 million units, or 3.3% of all handsets. That share will soar to 32%, however, by 2017, when Berg expects the installed base to hit 2.1 billion.

That could help solve one of the major issues plaguing NFC-based mobile payments: lack of capable phones. “I believe we will see increased handset volume in 2013 that supports NFC,” Cherian Abraham, mobile commerce and payments lead at Experian Global Consulting, tells Digital Transactions News by e-mail. “With Samsung and Motorola shipping NFC phones, I expect the numbers to pick up.”

At the same time, shipments of point-of-sale terminals capable of NFC transactions are also on the rise. Berg Insight estimates they will account for 82% of the North American installed base by the end of 2017.

But merchants may install NFC terminals, and consumers may buy NFC smart phones, without actually using the technology. Some experts say a focus on non-payment NFC capabilities, such as the automatic redemption of offers, is missing. This factor, along with the lagging development of the two major NFC initiatives, is holding back NFC, they say. “Transaction volume will continue to suffer, as the lack of traction for Google and Isis will keep others at bay,” notes Abraham. “At least here within the U.S., we seem incapable of envisioning customer value beyond payments.”

For all forms of mobile payment, whether NFC-based or not, Gartner expects dollar volume in North America to reach $37 billion this year, up by more than half from 2012. Berg Insight, meanwhile, estimates the volume of mobile-wallet transactions in physical stores amounted to $500,000 last year, a total mostly accounted for by a single initiative, Starbucks Corp.’s mobile-payments app, which relies on barcodes rather than NFC. Starbucks revealed last week it is processing 4.5 million mobile transactions each week.

Berg expects in-store mobile-wallet volume to grow dramatically to $44 billion by 2017 as Google Wallet, Isis, and other major initiatives finally build momentum.