Visa And Samsung Want To popularise Mobile Payments, But Their Strategy Is Wrong

If any two companies could push consumers toward adopting mobile payments, it would be Samsung Electronics and Visa Inc. But there’s one big problem with their strategy — announced at the Mobile World Congress in Barcelona — for transforming Samsung’s popular phones into payment tools.

NFC-Enabled Device Shipments Are Increasing

Photo: BII

That problem is NFC (Near-Field Communication). NFC is a technology that helps devices communicate wirelessly with compatible payment terminals. Consumers with NFC phones can wave or tap them at these terminals to effect a payment.

NFC requires that devices have an NFC chip, and the software to take advantage of it. Samsung will ship millions of its new devices, presumably including the much-anticipated new Galaxy phone, with NFC and Visa’s payWave app.

Here’s the issue with NFC: It requires that participating merchants also install NFC-compatible terminals. As we’ve written, that creates a chicken-and-egg problem. Not only do consumers have to embrace a new and unfamiliar shopping behaviour, but merchants have to upgrade their point-of-sale hardware in order to accommodate NFC.

That means a considerable investment in hardware that isn’t yet proven on the consumer side. Despite the fact that 285 million NFC-compatible devices are expected to ship this year, and 102 million shipped in 2012, NFC adoption is still low in most countries. (See charts.)

… But Global Adoption Of Mobile Payments Is Still Low

Photo: BII

At Barcelona, Visa competitor MasterCard also announced its own payments platform called MasterPass, but MasterCard hedged its bets on NFC. MasterPass mobile payments will work with NFC, but also via apps and scannable QR codes.

(We recommend reading our explainer for an in-depth look at the different mobile payments/mobile wallet technologies.) 

It’s understandable that Samsung and Visa want to see NFC succeed for payments. Samsung’s business is hardware, so a device-focused solution will allow it to gain influence in mobile payments. Plus, arch-rival Apple has so far shunned NFC, so if NFC does gain wide adoption, it will give the Korean company an edge.

Especially Outside East Asia

Photo: BII

Visa, meanwhile, wants to remain at the heart of as many transactions as it can if it’s not to see its revenue base threatened, and so needs to make sure it has a foot in the NFC space, in case the technology is successful (although Visa also has an investment in a non-NFC mobile payments app, Square).

As we detailed in our recent mobile payments report, the market’s potential rewards are huge. There were nearly $4 trillion in non-cash transactions recorded in the U.S. alone in 2011. If smartphones can be transformed into widely accepted payment devices — alongside cash and credit cards — then mobile payments players will skim their fair share of that volume.

The question is whether NFC can gain enough popularity with merchants and consumers to wedge itself into that space. We’re betting that it will sputter, and that more flexible software-oriented and backwards-compatible solutions like PayPal’s and Square’s will eventually win out.

More mobile payments coverage:

Click here to read our June 2012 explainer of the different mobile payments technologies→

Click here to read our February 2013 report on mobile payments, which explains in more detail why NFC will lose to payment apps like Square, PayPal and others→

Click here for our June 2012 in-depth report on mobile payments →

Click on the links for recent news notes on PayPal Here and Groupon Payments →

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