Three Reasons Why Carriers Prefer NFC
CNBC happily reports that mobile payments are going mainstream, pointing to the NFC Forum’s efforts to create mobile phone payment solutions that can be used in-store with built-in NFC devices. AT&T, T-Mobile, and Verizon have all signed up with NFC Forum, working on solutions that 0use the technology to make mobile payments ubiquitous.
Meanwhile, Apple, Google, and the mobile-payment startups like Square are ignoring NFC altogether, focusing on software and hardware solutions that involve different technology.
There’s a reason for this gap, and sadly it also means we probably will not see a mobile payments standard for several years.
Why do the cell phone carriers persist in NFC? There are three reasons, but they all boil down to a hunger for one thing: profit.
Displacing the Old Players
Square, Paypal, and smaller mobile payment startups create add-on technology that enables people to use their credit cards for mobile payments. Cell phone developers Apple and Google partner with merchants, banks, and credit card issuers to enable their products to be used on their devices.
The carriers see the situation differently. With an NFC-enabled device, you can make a payment and have it charged to your cell phone bill, which you can then pay directly from your bank account. In other words, there’s no need for Visa, Mastercard, Verisign, or any credit card issuer at all. It’s a transaction between you, your carrier, and the merchant.
In other words, your cell phone provider has also become your payment provider, which allows the cell phone carriers to steal business from the credit card industry. Considering credit card transactions annually run in the trillions of dollars, that’s a pretty big motivation to push for NFC tech.
If your NFC-enabled phone is also your payment device, you are locked in to the actual device you are using. If you use a Paypal app or Apple’s Passbook to route your payments, you aren’t completely locked into your device—you can log in elsewhere and use the same account details to make a payment.
Locked-in hardware is good for carriers for two reasons. The longer you use a device, the less money the carriers will need to pay to phone manufacturers if they subsidize your device. Also, the more you use your device, the less likely you are to switch to another provider. Being locked in to your phone makes it more of a hassle to go to another provider, upgrade to another phone, or drop your carrier completely. Just like people rarely switch banks these days because it’s too much of a hassle, people will rarely switch their phones if that becomes a hassle too.
Behind the scenes, financial companies take advantage of the data you give them. When you buy things, your credit card issuer and bank know what you’ve bought, when, and from whom. They can aggregate this data, analyze it, and sell if to marketers.
Big data is big business, and having access to this data has real value. By controlling the mobile payments ecosystem, the carriers have another product to sell: your data, which they can then sell to banks, merchants, credit card companies, or just about anyone who asks.