Digital Money Facing A Challenging Road

The current base of 5.1 billion mobile users worldwide is set to increase to 7.1 billion by 2015. By 2015, NFC devices will become widely accepted and the total installed base of users is forecast to reach 588 million.

Focal Points:

• The convergence of contactless card payments into the mobile sphere is a certainty but the road ahead for industry participants is challenging. In a recently published study of the digital money market, ARCchart examines the challenges facing the deployment of NFC-enabled mobile phone as a payment method.
• There is much enthusiasm among key ecosystem players for digital money. However, the lack of clear business models and the high number of participants pursuing different agendas is hampering the establishment of a mobile payment market. Cost remains a major stumbling block for many. This is especially true for small retailers who are often left to absorb the entire cost of deploying NFC-enabled EPOS terminals.
• Credit cards issuers such as Visa and MasterCard are actively working to have their contactless solutions accepted in large retail chains such as Starbuck and McDonald. ARCchart estimates that the cost per terminal for these retailers is $405 once maintenance, back-office and replacement costs are factored in.
• Large retailers can absorb the high cost of deploying contactless EPOS, as is the case with McDonalds, which spent $2.4 million in the UK alone. However, the cost of deploying one or two contactless EPOS in a corner shop is often regarded as prohibitive given the number of potential users and limited advantages that can be derived from it.
• Getting consumers on-board and the development of vertical markets are other issues facing the industry. Consumers want a viable alternative to cash but are uncertain as to what is available. Clearly, financial institutions need to do more to educate the public about contactless payment options available to them.
• In addition, companies such as Google, Yahoo, and Apple, who derive large portions of their income from online services, will also play an important part in bringing to market new applications that will extend beyond payments and which will provide clear benefits to customers.

Above all, there needs to be greater co-operation amongst ecosystems players if they all want an equitable share of the revenue associated with a successful digital money market.

Only mobile devices can deliver the range of value-added services that consumers wish from a contactless payment method centered on NFC technology.

Editor’s Note: The immediate impact to IT Executives is unclear.

However, it is expected that the impact in the consumer market will be significant in the next few years. Using the consumer to corporate adoption path, the expectation is that once the cost to support contactless payments becomes more reasonable (and it will!), by 2014 the use of contactless payments in corporate America will start to gain traction.