Apps Vs. NFC For Mobile Payments -- Here's Why The Debate Matters And Who Will Win

The big question in mobile payments is not whether they will catch on with consumers.

Already, Starbucks processes 10% of its U.S. transactions thanks to customers who hold up their phones for cashiers to scan, instead of using plastic or cash.

The real question is what kind of technology will power mobile payments. Will the solution be hardware-dependent or software-centric? Will phones require an NFC-chip (Near-field communications, which allows phones to communicate wirelessly), and an NFC-compatible payment terminal? Or will modular, software-based solutions complemented by attachable card readers win out?

In our most recent report on mobile payments, BI Intelligence takes apart the NFC vs. software-based card reader battle.




Market need

Software and Card Readers

The card readers and their software immediately addressed a niche market with a void — the 27 million or more small and local merchants that do not accept credit or debit cards. Think food trucks, and neighbourhood cafés and bakeries.

Total market size day one

Software and Card Readers

NFC requires phones that have an NFC chip, and only a subset of smartphones do. iPhones, for example, still don’t have NFC. Credit card reader-based solutions and apps allow for instant access to anyone with a credit card.
The merchant experience


For big retailers, NFC solutions will provide a more familiar payment environment. It’s not necessary to fiddle with new software. The NFC terminals will integrate easily with legacy point-of-sale solutions. That said, Starbucks has eschewed NFC.

Software and Card Readers

Here’s where card reader-based solutions shine. Players like Square and PayPal Here typically ship their systems for free. Their transaction fees are at least competitive with legacy systems. By contrast, NFC merchant-side units are expensive. That means heightened technology risk: Merchants will worry NFC will become obsolete.

Consumer experience

Software and Card Readers

This could be a wash. Theoretically, NFC would be a smoother customer experience since all you have to do is wave your phone, instead of having to verify payment via an app or give the merchant your name or a credit card. But remember NFC isn’t available at all merchants or on Apple’s phones, and card readers give consumers the option of using the credit cards they’re already comfortable with.

This debate is a huge question in mobile because some of the biggest companies in tech have a lot riding on the issue. Apple has so far remained mostly on the sidelines, its Passbook virtual wallet app doesn’t do payments (although it carries Starbucks and Square, two Passbook-compatible apps that can be used to power transactions). Google Wallet has bet on NFC. So has Isis, the brainchild of the main U.S. carriers, and a similar venture by Samsung and Visa.

PayPal and Square, instead, have bet on software and app-centric solutions that rely on hardware only in the sense that cheap attachable card readers and other solutions can help merchants hook into the system. No chip is needed.

In our second quarter 2013 update on mobile payments, we explain the main types of mobile payments, analyse the state of the mobile payments race, examine the matchup between card readers and Near-field communications (NFC), look at how traditional banks, credit card companies, and card processors are responding to the mobile payments threat, and detail who is furthest along in developing the all-in-one solution for merchants and consumers.

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Here’s a brief overview of the current state of the mobile payments race:

In full, the special report:

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Subscribers also receive access to our 2013 reports on Mobile Banking and Apple Passbook, as well as unlimited downloads of our complete report library and hundreds of charts and datasets on the mobile industry.

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