Deloitte predicts that in 2012 shipments of devices equipped with near field communications (NFC) capabilities will likely grow about 100 percent to almost 200 million. In 2013 there may be as many as 300 million NFC smartphones, tablets and eReaders sold. This compares to a 2010 when fewer than 50 million devices were purchased¹⁹⁵. Over the long run, NFC-enabled devices are likely to find a wide array of uses – especially for payments. But even in 2012, NFC capability will likely be used for a surprisingly diverse range of non-payment applications, including gaming, security, authentication and information.

NFC technology enables a secure exchange of information between devices over a very short distance (usually up to four cm) at a relatively low transfer rate¹⁹⁶. NFC is not suited for high-bandwidth applications such as video but is ideal for transmitting small amounts of information with minimal set-up time and power consumption. In these respects it outperforms other wireless technologies such as Bluetooth, SMS and infrared¹⁹⁷.

It has long been believed that a critical mass of NFC readers at retailers – combined with ubiquitous smartphones and tablets – would provide the required environment for the ‘digital wallet’ to take off¹⁹⁸. In the short term, however, consumers may not yet be comfortable using a mobile phone as a payment device. In one recent survey, over a quarter of respondents were concerned about security, battery life, or simply preferred to use their phone only for voice – perhaps out of habit¹⁹⁹. That could change quickly though. One analyst has forecast $50 billion of NFC-enabled payments by 2014²⁰⁰. Currently the global payments market turns over more than $30 trillion per year, generating revenues of $900 billion²⁰¹.

Mobile banking and payments have already enjoyed significant success in emerging markets where many people have cell phones but few have credit cards or banks accounts²⁰². It is possible that NFC mobile devices could do well in similar markets, particularly in major cities, which are more likely to have NFC-enabled pointof- sale (POS) terminals. Numerous initiatives between local operators and financial services providers have been launched²⁰³. It is expected that 700 million people in emerging markets will be using mobile money services by the end of 2015, and many of those services could be enabled by NFC²⁰⁴.

But what about 2012? Many consumer perceptions and concerns in the aforementioned survey are not well-founded. NFC uses barely any battery power and is significantly more secure than many other forms of payment technology, including magnetic stripe credit and debit cards²⁰⁵. But until the industry can correct those misperceptions, consumer adoption of NFC for payments may lag. Although virtually all new retail POS terminals are capable of interacting with NFC-enabled mobile devices, the large installed base of older POS terminals might hold NFC transaction levels down until early 2013. Only two percent of merchant locations in the United States had incorporated NFC readers as of mid-2011, and terminals are only replaced every seven to ten years²⁰⁶ . Finally, consumer adoption of NFC payment using smartphones may be slowed by alternative contactless payment solutions, principally the 200 million contactless credit and debit cards forecast to be in circulation by the end of 2012²⁰⁷.

Even if 2012 turns out to be what one payments executive referred to as “a transitional year for mobile payments,”²⁰⁸ those NFC chips on smartphones won’t go to waste.

An obvious near-term market for NFC is replacing the access cards that adorn hundreds of millions of workers around the world. Carriers working with phone manufacturers have already launched trials for phones that replace those cards²⁰⁹, and 2012 will likely see larger rollouts. While replacing one card, NFC phones can also help get rid of another: with a single tap, all of the information on a traditional paper business card (and more) can be seamlessly transferred to another phone’s contact file²¹⁰.

The video gaming industry is always looking for fresh ways to engage with players. One online video shows some early ideas of how an NFC-enabled phone could be used in gaming. The examples are fairly simple, with children playing card-matching games, or gaining new levels by tapping phones together²¹¹, but the concepts are interesting (and simple concepts can hold surprising mass-market appeal²¹²). Other gaming applications include the ability to interact with real-world objects, such as figurines or even bird-shaped plush toys, in the case of one popular casual game often played on mobile devices²¹³. Or the technology could enable a real-world treasure hunt used to promote a movie or film festival²¹⁴. The gambling industry is also experimenting with NFC phone enhancements.

Another market that will likely emerge as an NFC success in 2012 is as a potential replacement to QR codes. Those 2D-barcodes are ubiquitous, but seldom scanned. They convey limited information, and many users find them unreliable or finicky to use. In fact, only five percent of US adults scanned a QR code in 2011²¹⁵. As a result, some technology companies are embracing NFC solutions that can be read by phones as an alternative to QR codes²¹⁶.

Other vertical markets examining the use of NFC phones include the automotive²¹⁷ and healthcare industries²¹⁸. NFC phones could work with a car’s sound system or act as the vehicle’s key. And in a home health care setting, NFC could be used to transmit patient vital signs and other physiological measurements to healthcare workers at a central site.

As over 200 million NFC-enabled mobile devices are deployed in 2012, many headlines will probably focus on how much or how little they are being used for payments. The vast market potential for payments justifies this focus; however, it is worth remembering that there will be literally thousands of other applications for NFC, and that payments are not the whole story.

Bottom line

Given the possibly slow adoption of payment solutions on NFC phones, device manufacturers need to weigh the benefit of adding NFC technology to mobile devices. The incremental cost is relatively small (probably around $3-$5 at present, but declining sharply as volumes rise²¹⁹) but it is not zero. mobile phone vendors need to assess the value of offering an NFC-enabled mobile device as a source of competitive differentiation. They may also need to encourage the development of non-payment applications, and work with standards bodies to help NFC take root.

Application developers need to be involved in the NFC ecosystem in order for non-payment applications to emerge. The promise of increased in-app purchases could help entice developers to create NFC-enabled applications. Corporate adoption of NFC phones as ID cards could also be a key driver and significantly enhance the perceived value of owning an NFC-enabled phone.

The complexity of the NFC value chain is a possible barrier to expanding the NFC payment market. Increased adoption of NFC payment services could be influenced by improved collaboration between the different players in the space. Operators, who have existing billing relationships with customers, merchants, OEMs and financial institutions, need to ensure that the business model they choose will ultimately benefit the end-user. To promote NFC adoption, they need to offer a wide range of merchants and value-added services, including promotional discounts and coupons via smart tags, as well as loyalty schemes that consumers find appealing.

Deloitte Canada, as referenced in videos, podcasts, or online materials related to TMT Predictions 2012, refers to Deloitte & Touche LLP, the Canadian member firm of Deloitte Touche Tohmatsu Limited.

¹⁹⁵US Wireless Carriers Partner with Big Credit Card Companies Boosting Cell Phone NFC Market, IHS iSuppli, May 12, 2011: http://www.isuppli.com/Mobileand-Wireless-Communications/News/Pages/US-Wireless-Carriers-Partner-with-Big-Credit-Card-Companies-Boosting-Cell-Phone-NFC-Market.aspx

¹⁹⁶The maximum bit rate supported by NFC is 424 kbit/s, which is acceptable for most applications, but not video. Further, that maximum bit rate is seldom achieved in real world settings.

¹⁹⁷SMS is not a short range technology, but it is used as a mobile payments technology, so we have included it in the list. Essentials for Successful NFC Mobile Ecosystems, MFC Forum, October 2008: http://www.nfc-forum.org/resources/white_papers/NFC_Forum_Mobile_NFC_Ecosystem_White_Paper.pdf

¹⁹⁸Mobile Wallet Gaining Currency, The New York Times, 6 September 2011: http://www.nytimes.com/2011/09/06/technology/mobile-wallet-gaining-currency.html

¹⁹⁹Consumers Weigh In on the Digital Wallet, Complete, 1 June 2011: http://blog.compete.com/2011/06/01/consumers-weigh-in-on-the-digital-wallet/

²⁰⁰Juniper: NFC Payments To Reach $50 Billion Worldwide By 2014, TechCrunch, 7 June 2011: http://techcrunch.com/2011/06/07/juniper-nfc-payments-toreach-50-billion-worldwide-by-2014/

²⁰¹Global perspective on payments: The McKinsey Global Payments Map, McKinsey, April 2009: http://www.mckinsey.com/clientservice/Financial_Services/Knowledge_Highlights/Recent_Reports/~
/media/Reports/Financial_Services/Global_Perspective_on_Payments1.ashx

²⁰²Mobile payments go viral: M-PESA in Kenya, World Bank Website: http://Web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:22551641~page
PK:146736~piPK:146830~theSitePK:258644,00.html

²⁰³For example, ABSA and Vodacom have formed a strategic alliance to accelerate the pace of innovation in mobile financial services; the first trial commenced in December 2011; Source: Absa and Vodacom form mobile financial services partnership, NFC World, 19 December 2011: http://www.nfcworld. com/2011/08/19/39183/absa-and-vodacom-form-mobile-financial-services-partnership/; Source: Absa begins South Africa’s first NFC pilot, NFC World, 8 December 2011: http://www.nfcworld.com/2011/12/08/311815/absa-begins-south-africas-first-nfc-pilot/ ; Absa starts NFC trials for retail, IT News Africa, 6 December 2011: http://www.itnewsafrica.com/2011/12/absa-starts-nfc-trials-for-retail/ ; Airtel and Vodafone to implement SIM-based NFC solutions, Voice&Data, 16 November 2011: http://voicendata.ciol.com/content/news1/111111606.asp

²⁰⁴700m to use mobile money in emerging markets by 2015, NFC World, 6 June 2011: http://www.nfcworld.com/2011/06/06/37841/700m-to-use-mobilemoney-in-emerging-markets-by-2015/

²⁰⁵Also, its extreme short range makes it more secure than some other wireless technologies whose signals travel further. For a hacker to gain access to the signal, they would need to have an antenna within 20 cm or 8” of the phone, which is difficult to do surreptitiously.

²⁰⁶Will 2012 Be the Year of Mobile Payments? No, PC MAG, 26 September 2011: http://www.pcmag.com/article2/0,2817,2393629,00.asp

²⁰⁷Publicly available data shows that there were about 130 million contactless credit cards in circulation by the end of 2011. Given announced launch plans, 200 million seems a reasonable minimum by year end 2012.

²⁰⁸Will 2012 Be the Year of Mobile Payments? No, PC MAG, 26 September 2011: http://www.pcmag.com/article2/0,2817,2393629,00.asp

²⁰⁹T-Mobile begins internal NFC payments and access control trial in Czech Republic, NFC World, 23 April 2010: http://www.nfcworld.com/2010/04/23/33501/t-mobile-begins-internal-nfc-payments-and-access-control-trial-in-czech-republic/

²¹⁰Business Cards Will Never Be the Same Again, The Wall Street Journal, 15 February 2011: http://blogs.wsj.com/tech-europe/2011/02/15/business-cards-willnever-be-the-same-again/?KEYWORDS=business+card

²¹¹Nokia 603 packs Symbian Belle, NFC, Angry Birds Magic, CNET, 17 October 2011: http://crave.cnet.co.uk/mobiles/nokia-603-packs-symbian-belle-nfc-angry-birds-magic-50005648/

²¹²Nokia dabbles with NFC gaming, Pocket-Lint, 20 October 2011: http://www.pocket-lint.com/news/42643/nokia-nfc-future-mobile-gaming

²¹³How the Gaming Industry Is Using NFC Technology, X.commerce Website, 24 May 2012: https://www.x.com/devzone/articles/how-gaming-industry-usingnfc-technology

²¹⁴NFC will catch on ‘like wildfire’ says Sundance festival game creator, NFC World, 20 March 2011: http://www.nfcworld.com/2011/03/20/36516/nfc-will-catch-on-like-wildfire-says-sundance-festival-game-creator/

²¹⁵2D Bar Codes: Driving Consumers To Purchase, Forrester Research, 14 November 2011: http://www.forrester.com/rb/Research/2d_bar_codes_driving_consumers_to_purchase/q/id/60906/t/2

²¹⁶Google Kills Off Those Little Square Codes You Scan With Your Phone, Business Insider, 31 March 2011: http://articles.businessinsider.com/2011-03-31/tech/29979593_1_qr-codes-android-nfc-forum

²¹⁷World’s top auto makers to work on putting NFC in cars, NFC World, 18 March 2011: http://www.nfcworld.com/2011/03/18/36499/worlds-top-auto-makersto-work-on-putting-nfc-in-cars/

²¹⁸Design Watch: miniMe Biometric Device Wins iF Award, MDDI, 7 November 2011: http://www.mddionline.com/blog/devicetalk/design-watch-minimebiometric-device-wins-if-award

²¹⁹The cost of an NFC chip is estimated based on existing knowledge, conversation with industry players and published industry estimates including Nokia’s Smart Phones To Feature NFC Chips In 2011, Payments Source, 18 June 2010: http://www.paymentssource.com/news/nokia-smart-phones-to-feature-nfcchips-3002165-1.html.