Digital wallets using mobile phones: the idea has been around for quite some time now and every once in a while it is resurrected by some company or another only to die shortly thereafter. Why is that? The idea is so revolutionary, but it remains without widespread acceptance and wholehearted implementation. While the idea will require a large investment, it also has a very large potential payout on the backend.
Near Field Communication Chips
The concept is simple. Much like an RFID reader, the chip allows one to simply swipe the phone near a NFC reader to take money directly out of your bank account.
While booth Google and Apple are working on the concept of integrating NFC into Android and iPhone devices, there is going to be some major upheaval from the credit card industry on this one, mainly because such a move would put the two technology companies between literally billions of dollars of transactions. This is creative destruction at its finest.
Problems with Competition
This technology will destroy the regularly seated business for thousands of merchants and teller hardware and software providers. Do you think they will readily adopt, fall over quietly or put up a fight? I’m sure there will be mixed feelings, but this group remains a hurdle nonetheless. It will be a bit more aggressive than the tablet menu/printed menu battle we’ve spoken of previously.
Problems with the Network
Imagine the need to retrofit every smartphone with an NFC chip. It would be quite extensive, but could happen in a couple years time, given that most people are replacing their phones on a two year contract. That is not the big issue here. The most malicious investment will be in the adoption, installation and full implementation of the NFC readers by merchants around the country. It’s a question of the cart before the horse. Which comes first and how do you get such a big cart moving?
Some have suggested Google or Apple would need to subsidize such a move, which may be true. And Google could find a way to do it given their massive infrastructure and experience in merchant services with Google Checkout. However, the subsidization is only half of the battle.
Problems with Consumers
How quickly would people be able to change their habits and move to a “swipe your phone to pay” digital system? It seems to me that such acceptance will take a little while there as well. I don’t think I would personally have an issue with accepting, but I’m probably an exception to the rule.
I personally cannot wait until such devices allow me to rid myself of my entire wallet, not just my debit/credit card. That means my license and any other card which includes or does not include a magnetic strip. Where will NFC chips be in five years? It may go nowhere, unless someone is willing to take a very large gamble on the technology which would require a huge investment and a number of large hurdles to surpass. If it does work though, the payout would be astronomical.