Mobile payments using NFC Technology: Challenges in emerging markets

The commercial transaction has travelled a long path from barter system wherein things of perceived equal value were exchanged… to purchasing of goods with variety of precious metals… to a system where we use respective currency notes of our country in transactions… And since last decade, the soaring fame of cashless transactions has made things easy for businessmen/ women, any buyer of individual or bulk products and difficult for roadside thieves… In this search for ease and smoothness in our buying experience, mobile payments through NFC is a worth mentioning addition.

To define technologically, “Near-field communication (NFC) is a set of communication protocols that enable two electronic devices, one of which is usually a portable device such as a smartphone, to establish communication by bringing them within about 4 cm (2 in) of each other”: Source: Wikipedia. It is evolved from Radio Frequency Identification Technology (RFID) wherein an NFC chip plays as one part of wireless link. A generally-supported standard is established as per NFC protocols. When one of the connected devices has internet connectivity, the other can exchange data with online services. While using NFC technology, linking does not have requirement of pairing code.

It has more power efficiency in comparison to other wireless communication types because it uses chips that run on very low amounts of power. NFC identifies user by their enabled cards and devices (and by extension, their bank accounts and other personal info.). As mentioned, NFC devices can be used in contactless payment systems. So, there is a huge prospect that it would replace or become a substitute to credit cards and electronic ticket smartcards.

Based on NFC world+ article by Rian Boden, Global Mobile NFC expenditure is going to soar in the upcoming years:

It is predicted that in the current year, 100 million people around the world will make a purchase by using an NFC handset, says a new report from Strategy Analytics. It is also indicated that the value of transactions directed through NFC handsets will grow heavily. It would increase successively from US$30bn in 2016 to US$45bn in 2017, US$70bn in 2018, US$110bn in 2019, US$160bn in 2020 and US$240bn in 2021.

The mobile which had almost become a part of our primary clothing or sometimes a part of our body today has been cashed in on by NFC Technology. This is the reason for exponential growth and expected future growth in the NFC enabled Handsets. According to Research and Markets, The world’s largest market research store, the analyst forecast the Global NFC Handset market to grow at a CAGR of 55.8 per cent over the period 2014-2019.

But there are challenges: for example acceptance towards mobile payments amongst any strata of consumer and the requirement of checking with the retailer regarding acceptance of NFC enabled payments Based on an article published in Fortune Magazine by Sarah

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Silbert on October 29, 2015, A recent Accenture survey states that though 52% of North Americans are “extremely aware” of mobile payments, only 18% use them regularly. As expected, Millennial and higher-income households are relatively fonder of contactless payments. The percentage users for these categories are 23 and 38 respectively. It has been studied that they do contactless payments at least once a week.

The data shows a big challenge for the mobile payments but emarketer has forecasted a 210% growth in the total value of mobile payment transactions in the current year. In developed countries, the percentage does not seem surreal. Fast Internet network, required infrastructure, good purchasing power of consumers for purchasing NFC enabled mobiles, all the resources are present for making hard cash during transaction a history. Also, many business owners such as Starbucks have shown clear value propositions to the consumers for enhancing mobile payments by offering incentives for it. Moreover the business men also get such clear incentives in terms of ease, money and more customers due to faster service which convince them for investing in updating infrastructure for implementing the change.

But in many developing countries, there is slow internet connection speed, minimal network reach, and weak infrastructure. Also, there is slow penetration of new generation smart phones which can be attributed to high poverty. The majority of the population still have old generation phones, which do not support apps. To rectify this problem, either the gap between old and new technologies should be filled up by mobile payment providers or the consumer will have to upgrade their mobile so as to use NFC enabled mobile payments which is not feasible for most of the consumers with lower purchasing power.

72.2% of Indian population lives in villages where traditional method of payment is given priority over anything. They are quite scared of new technologies and related frauds attributing to their no or less education. The idea of paying through a mobile device can make them uneasy, especially because they are so accustomed of keeping their hard earned money close to themselves. The right amount of education regarding NFC technology would be crucial in these areas.

There is one more challenge of security. Though companies like Apple, Samsung, and Google has introduced some clever safeguards to protect users, others might have been little behind in this aspect. This may give hackers to steal our personal information, including our address and account details through NFC skimming apps.

So, though NFC technology is faster, convenient and secured than other contemporary technologies, it still has not become ubiquitous attributing to the above stated challenges. Unless it acknowledges the population at the bottom of the pyramid, it would find difficult to penetrate the global market completely.