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NFC: A Bust Already?

Near field communications (NFC) is too expensive for most stores to implement, says one major point-of-sale vendor. Despite the fact that shipments of NFC-enabled devices should reach nearly 100 million this year, analysts are divided over whether retail will use it any time soon, especially now that the iPhone 5 has landed in stores without it.

The head of marketing for one of the world's largest point-of-sale systems providers said he doesn't believe near field communications (NFC) will gain significant traction in the near term and will be just one payment option for consumers.

"NFC is very cool and a nice technology, but there are technologies that are a lot cheaper," said Oren Betzaleli, executive VP and head of marketing and products for Israeli-based Retalix, whose retail technology powers POS systems for 10 out of top 30 global retailers and 13 of the world's largest grocery retailers. Special software or payment terminals are needed to communicate with NFC chips in smartphones, something many retailers have been leery to adopt.

Betzaleli's comments come after Apple launched the iPhone 5 without NFC technology and instead opted to promote its Passbook mobile payment app, which is available in the new iOS 6 mobile operating system.

"One of the things we've been hearing for quite a while from the larger [retailers] is, although it is nice buzz and a nice gimmick ... to wave your phone in front of something, it's very uneconomical," said Betzaleli. "If a retailer banks on NFC, it needs to accept that a good portion of its customers will have NFC. There needs to be a business case and they are assuming ... the devices that will have them."

According to Forrester Research, worldwide shipments of NFC-enabled devices will more than double in 2012 to nearly 100 million, although widespread use of the technology is still three to five years away in many countries. Yankee Group is more bullish on the technology, forecasting NFC-enabled transactions will exceed $355 billion worldwide by 2016.

Implementing NFC will be extremely expensive even for the largest retailers, said Betzaleli, because it requires additional hardware in all checkout lanes. That translates to anywhere from $15 to around $50 per lane, and some of them have thousands of stores with 30 to 40 lanes. "The other cost is the cost of implementation, manpower, testing it, going into each store and sending teams in to do the deployment; this is the more expensive part of deploying physical retail apps in stores," said Betzaleli. It makes sense if there is a business case, but, Betzaleli maintains, there are too many less expensive options available for enabling the mobile wallet--options that don't require the user to hold all their sensitive personal information on their device, and which could also prove more lucrative for retailers.

"There are so many alternatives to NFC that I'm not sure it will become mandatory," he said. "The world today is going to digital wallets" like Paypal. Another oft-cited example is Starbucks, which offers mobile payment with a swipe of the phone in a bar code format. Betzaleli believes cloud-based digital wallet services also will gain momentum, with credit card information being kept in the cloud rather than on a device. "You just have to identify yourself with a username and password and if you don't need to exchange card information it's more secure," he said.

Large retailers might also opt for their own digital wallets, which would also require identifying yourself rather than passing card information along over and over. "The only thing left to communicate is between the phone and the store system, and you don't necessarily need NFC," Betzaleli said, because the information can be transmitted via a phone scanning code or GPS, which would know the store the consumer is in.

Retalix has done implementations at a large convenience store chain in Israel and grocery chain in the UK where an iPhone is able to generate a code that is available for several seconds before it is voided, he said. That code is given to a cashier to enter into a POS system and both the phone and POS system communicate with the cloud.

Betzaleli said Bluetooth also can be leveraged to connect to any type of payment service a retailer has, to send along a user ID and an authorization code, if the retailer has a digital wallet containing the person's credit card information--although he added that he isn't aware of any specific implementations. The cost difference between digital wallets and NFC can be significant, Betzaleli said, estimating that the latter can be as much as four to five times less for the retailer. "Adoption will be much easier because they won't depend on phones with NFC," he said.

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