COMMENTARY: Lessons Learned From NFC Failures

During the last 20 years, I’ve worked for, consulted for, partnered with, or analyzed hundreds of payments companies and thousands of other firms that are in some way connected with payments companies, either as customers, prospects, or partners. Many of those companies have been highly successful, some explosively so. Others have struggled mightily to obtain revenue that represents even a small fraction of the funds that they have invested.

What separates those that grow explosively from those that flop? Those that succeed are positioned to swim downstream in a current of supporting market forces. Those that flop are trying to create or contradict market forces, and are therefore swimming against the current. That is a prescription for failure every time. Since the explosion of near-field communication (NFC) investments that kicked off in late 2010, I’ve connected with and analyzed a wide variety of NFC-focused firms.

I’m yet to find one that is swimming downstream.

Few payments professionals would dispute that PayPal is one of the largest industry success stories over the last two decades. Nor would they dispute that PayPal was in the right place at the right time, offering the right service to ride the currents provided by the explosion of the Internet. Braintree (now part of PayPal) and Stripe are more recent examples, having positioned themselves to ride the market forces created by the smart-phone and mobile-app explosion.

So I ask you this: Looking at the chart above, where are the market forces driving NFC? Before you answer that question, please consider that when it comes to payments, banks, payment networks, payment gateways, digital marketers, network operators, device manufacturers and other technology-solutions providers are all on the supply side of market forces. Demand must come from merchants and consumers. Being an NFC-solutions provider to a supplier is merely increasing the supply-side glut. With regard to NFC, merchant reaction has varied from widespread indifference to outright defiance. Consumer adoption of in-market NFC solutions has been anemic.

Starbucks, creator of the most successful in-store mobile-payments solution in existence, was launched in response to consumer feedback and was developed to solve very specific consumer pain points. It also operates in an account-on-file arrangement that makes NFC irrelevant. The largest U.S. merchants banded together to fight NFC with their own, account-on-file wallet. Chase, the largest U.S. bank, is putting its efforts behind a card-less and NFC-less digital wallet.

Here’s another thing to consider. Over the last two decades, digital technologies have exploded. The result has been a migration of commerce away from the card-present environments, where NFC is relevant, and toward card-not-present environments, where NFC and plastic cards are significant inconveniences. This even extends to in-store commerce, where account-on-file solutions that allow for pre-ordering, pre-payment, and in-store checkout line-skipping have been far more successful than their NFC counterparts, which merely replicate card transactions.

So before you spend your next dollar on NFC enablement, ask yourself if market forces are really supporting your investment. And in the future, if you find yourself saying things like, “We need to prime the pump,” or “If Google and Apple get on board, this thing will start rolling,” or “We really need a network mandate,” or “We need to agree on standardization to make this work.” or any other phrase that really means “there is no demand for our product,” then please, re-think what you are doing.

—Rick Oglesby is principal at AZ Payments Group LLC, Mesa, Ariz., and a partner at Double Diamond Group. Reach him at Rick@AZPaymentsGroup.com.