Mobile payment systems are a big deal. Pundits have been predicting the move to mobile wallets enabled on cell phones for years. The logic is sound. Nearly everyone will have smartphones soon. You can even enable mobile wallets on feature phones. Instead of carrying a physical wallet and credit cards which are subject to loss, theft and bulk up back pockets and purses, we can pay everywhere with our phone. Most of the activity has centered around services such as the carrier sponsored Isis system and Google wallet. The thing they have in common is a reliance on near field communications (NFC). What they don’t have is scale.
Square Gives Mobility to Credit Cards
NFC has technical requirements that will need to be refined over years of use by millions of consumers. Before that refinement can begin, there needs to be infrastructure in place such as NFC embedded in phones and NFC terminals in stores. To truly eliminate your wallet, there need to be millions of stores with NFC terminals. Otherwise you would have some stores where you can use your phone to pay and others you still need cash or credit cards. That means the wallet will likely live on for a long time. This mirrors the time before credit card terminals became ubiquitous in retail.
Square saw a bigger opportunity leveraging something people already had and an approach that posed fewer barriers to building critical mass. By adding a small plug-in adapter to an iPhone, iPad or Android device merchants could use them to read physical credit cards and process transactions. And you can do this anywhere your smartphone or tablet has a data connection.
If the credit card is going to be around for a while, why not take advantage of the ubiquitous magnetic strip and established payment processing ecosystem. Marrying the credit card to smartphones and tablets gives it a second life altogether – relevance in a mobile age. It also gives the new system immediate potential for critical mass adoption. There are already 150 million iPhones and iPads in circulation. Many of those are owned by the more than 8 million merchants in the United States according to TechCrunch. Of those, TechCrunch reported in January 2012 that more than 1 million had adopted square. If you have started seeing those white blocks used to swipe your credit card lately, this rapid penetration is the culprit.
Hundreds, Thousands, Millions
Isis announced on May 15th that its NFC system will be available in hundreds of stores in Austin and Salt Lake City this summer. This week TechCrunch reported that Square card readers can now be purchased in over 20,000 stores for less than $10. This is a far cry from the traditional point of purchase systems for processing credit card transactions. As reported in USA Today in December 2011, these solutions require upfront investment and monthly fees. The article goes on to cite a comment by a merchant using square who says that he signed up for the service and was using it the next day instead of waiting for a week to get a typical POS system. The whole model is based on reducing friction.
So we have NFC in hundreds of locations at some point this summer and merchants can buy a Square system in thousands of locations and consumers use it at millions of U.S. locations today. And it’s not just Square. Intuit’s GoPayment is a similar device and it claims over 200,000 merchants already on board. Add to this challenge that some NFC enabled phones, such as the Galaxy Nexus through Verizon, cannot be used at all for payment. Square is even moving to merchant solutions that include a register you can run from an iPad and a method to set up automated accounts for frequent customers so they don’t have to bring in a phone or a credit card to make a purchase. That is true frictionless commerce.
NFC Impact for the Enterprise
The question for the enterprise is which solution is better and which will have the greatest impact. This depends first on whether you are a retailer or not. If you are a retailer you need to decide whether it is worth it to add a new payment terminal that is NFC enabled to your stores. There is expense to that, but probably less than putting smartphones or tablets in every store. The counter to this is that if you have iPads you can do much more than just accept credit cards. You can also access corporate computing resources and conduct check-out anywhere and not just as the established check-out islands. This certainly could come in handy during the holidays when the store gets backed-up at the register bottlenecks. It also enables you to leverage computing assets that you may already be using anyway. This is the charm of Square for the small merchant in particular.
If you are not a merchant, then this matters less. There may be some applications you can utilize that leverage the secure NFC payment technology, but utilizing a corporate credit card will differ very little if you are at a terminal as opposed to a smart mobile device. A key benefit of Square and its brethren is that waiters in the United States won’t have to take your credit card back to the terminal where others could steal the number.
For NFC, the challenge ultimately is ubiquity. If the technology can become ubiquitous in both smartphones and presence at restaurants and retail stores, it will have a lot of utility. Until that time, the Square model is a very good stop-gap that may wind up being a lasting solution slowing NFC adoption.