NFC is failing but drugs may save payments
For years the technology industry has confidently predicted that Near Field Communication (NFC) would be the vehicle by which we would all abandon our leather wallets and embrace our smartphones for electronic payments.
It hasn't happened yet and I don't really believe NFC is the solution that will really change the way we pay.
As enticing as the idea of using our phone for payments is, there are two problems that NFC technology fails to solve. The first being the "Catch 22" of needing critical mass for adoption, and the second is the failure of NFC to bring something really new to either retailers or consumers.
The technology does, however, give us a glimpse of the future of payments once we understand the underlying business drivers.
Barriers to adoption
Until consumers can be confident that all of their purchases can be made with their phone, they don't dare leave their wallets behind. Similarly, until retailers believe that enough of their customers aren't carrying conventional wallets, they won't invest sufficiently in alternatives to encourage take-up.
The second and potentially more serious issue is that the ergonomics are all wrong. NFC payments have been designed to mimic the way retail has been done for centuries, with the customer picking-up products from shelves and taking them to a payment terminal when ready.
From payments to transactions
Designers of the next generation of payment solutions need to step away from facilitating the exchange of currency between customer and retailer and think about the whole transaction. The highest priority for both shopper and shopkeeper is to rid the store of queues at the checkout, and ideally, if possible, eliminate the final transaction step altogether.
For electronic wallet adoption to really take-off, the supermarkets and department stores need to have a way to allow the store to pair the goods with the customer who is picking them up.
Ideally a contract will be established when a customer walks out of the store with the product, perhaps making shoplifting a thing of the past? However, anyone familiar with this problem will immediately identify that the product identification is the real hurdle with this compelling picture.
While Radio-Frequency Identification (RFID) is the most obvious approach, the cost of adding a tag to each product on the shelf, is currently too great.
Until someone solves the problem of pairing the product with the customer, there is little to make smartphone-based wallets really compelling. However the advantage of eliminating the checkout and reducing shrinkage is so large, that there is a ready market that will encourage rapid innovation.
Watch out for drugs
The surprising innovators to watch are the drug companies. They are keen to find sensors to attach to their medicines, to track drug absorption and improve inventory management. If they can make technology which is simple and cheap enough to add to a tablet, it is likely that it can be printed onto the packaging of consumer products as simply as a barcode is today.
Wearables are taking off
Assuming that the combination of product identification with location services proves to be the killer app for bricks and mortar retailers, the search will be on for even more ubiquitous devices that can go even further in aiding the consumer than a smartphone (which tends to sit in a customer's pocket). The answer is wearable computing.
Deloitte estimates the global market for wearables will be worth in excess of $2 billion in 2014, heavily dominated by a few device types, with more and more people using technology to monitor their wellness, drawing on new wearable gadgets, such as the Fitbit wristband, and apps that track diet and sleep.
The eyes have it
Smart glasses are also likely to sell millions of units at a price point of about $500. As the wearable consumer revolution ramps up, it is a 'wellness model' where people take control of their health as opposed to the 'health model', where people deal with health problems, that is helping to drive it.
In the long term, this seemingly 'space age' shift, will have big implications for life insurance and retirement plans.
Mobility - on the go
The Australian Interactive Multimedia Industry Association's (AIMIA) Australian Mobile Phone Lifestyle Index, which is based on a survey of more than 2,300 Australians aged 18 -75, suggests that wearable device users in Australia will treble in 2014.
Five per cent of surveyed respondents owned a wearable mobile device in October 2013 and 17 per cent intended to buy one in the next 12 months. This indicates that 20 per cent of 18 -75 year olds could well be using a wearable device by August 2014.
Putting the predictions to work
It is most likely that cloud computing will play a key role in developing the wearable device market. Cloud services, such as computing, storage and a suite of new databases are available anywhere, anyhow, any time to power the wearable technology revolution.
This will allow the data generated by wearable devices to be captured, analysed and made readily accessible whenever users and retailers need it.
Knowing where the customer is
Increasingly, knowing that a customer is in a store for instance is enough to establish the beginning of a transaction. For the financial services industry it will be important to keep a close eye on these early adopter industries.
The 'wellness' consumer industry, the pharmaceutical industry, aka the drug companies and the retail and food services industries, where cafés will enter a virtual contract with their regular customers, will be the industries that financial services should watch and learn from.
Robert Hillard is Deloitte Managing Partner Technology Agenda. He is a co-founder of Openmethodology website which provides a standard approach for information and data management projects and authored Information-Driven Business – How to Manage Data and Information for Maximum Advantage – published by Wiley.
This article was first published in Australian Banking & Finance.