"This (NFC) is just one of the many ways we’re using different technologies on different devices to change the way people pay and get paid," Laura Chambers, Director of Mobile, PayPal
"I was with a large merchant last week who described NFC as Not for Commerce," John Donahoe CEO, eBay Inc., the parent company of PayPal.
PayPal says it is looking at many technologies, including NFC, then days later its parent company comes out and says NFC is "not for commerce." What does it mean? The devil is in the details.
PayPal, for the most part, has been a payment method for online commerce. They may be able to deal with real world goods, and even a few brick-and-mortar merchants, but at the end of the day, the transaction is virtual and not for in-store purchases of goods and services. (The term "commerce" can be vague, because you’ve got e-commerce and m-commerce; I’ve recently heard someone use the term t-commerce. With NFC, let’s just think of it as “Real World Physical Commerce”.)
eBay now says that retailers are begging them to come into the offline world. But with what? What does eBay, have that can be used with offline retailers? And if they aren’t going to use NFC, then what? Will they do something over the air? (I’d love to be the person in line behind the guy with one bar of data connection on his phone.) It’s still a secret, I guess. But retailers want two things out of mobile payment right now: they want a method to reduce their transaction fees and they want a better way to offer value added services such as coupons, loyalty, targeted marketing, etc. Customers want something that will work in all stores and easily.
I’ve heard PayPal may do 2D barcodes. But point-of-sale vendors like VeriFone aren’t making 2D barcode readers standard on their terminals; they are making NFC standard. Those of us who know 2D barcodes – the technology, implementation, metrics and everything – can tell you if you don’t have an optical scanner, you're out of luck. You need a new device, one that generally costs more than a POS terminal. Plus most stores still use lasers, which are usually ineffective with reading 2D barcodes off of cell phone screens.
So what do these guys plan to do? First, let’s ask ourselves some questions:
- Why build an NFC product and then shoot that technology down the following week?
- What retailers will want to accept an additional point of sale terminal, or risk delays at the point of sale due to bad cell signals?
- Isn’t PayPal still dependent on the card companies and banks? (All PayPal accounts are linked to a card or bank account.)
- Can PayPal get into every brick-and-mortar with wide adoption within four years, or roughly the timeline eBay's CEO said NFC would take?
- Will PayPal be able to conform to payment regulations?
And the list goes on. As I said, the devil is in the details.
Mr. Donahoe stated that NFC lacks standards. But NFC works, for the most part, on the same standards used today for contactless cards, and the secure elements are basically identical to the smart chip on contactless cards that already conform to the global platform standard. NFC also meets a frequency standard and ISO standard, POS terminals that accept NFC meet the PCI standard, and all banking laws, regulations, etc. The standards that NFC meets go on and on. And let’s not forget that NFC has been around for nearly a decade and has had thousands of pilots and trials of varying sizes around the world to work out its issues in the real world.
What standards for brick-and-mortar payments is PayPal meeting?
Wait, they actually need to tell us first what their product is; maybe show it to us so then we can say, "Oh yes. You are right and we were wrong."
Mr. Donahoe should probably have elaborated that PayPal has yet to be in any brick-and-mortar retail store chain nationwide, and even after they do a pilot, will likely take a decade to get to where NFC is today. And in the meantime, who is going to go out to every retailer to get them to sign up for PayPal at the point of sale? Card associations, banks and processors, who have committed to NFC as their main technology for mobile payments, have hundreds of ISO’s and dozens of merchant service providers to go out and sign retailers.
I’m on a roll now, but I’ll stop and tell you why I believe eBay may be dismissing NFC.
PayPal wants to grow and the real growth is in the brick-and-mortar world. Less than 10 percent of all transactions are on the Web. That’s not going to change anytime soon. So how does PayPal, with expertise in the virtual world, satisfy investors who may worry its market has reached its max? If it can’t compete with a technology, it will try to bring it down and make the market for that technology sound less appealing.
PayPal is sounding a little short-sighted on the potential of mobile for its future. The company may think it’s a big opportunity for it, but in truth, PayPal needs to multiply its projections by a factor of 10. Mobile is a huge opportunity for them. And it's the core future for their parent company. They just need to know where to focus and not cut off technologies that are the standard. They need to embrace them from new angles. If they are innovative then they should innovate using the evolving standard technology and not shoot it down due to short-sightedness.
I am actually a fan of PayPal and believe they are innovators with more to come. They will likely never replace Visa or MasterCard, who are going to be kings for another decade or two, but tapping NFC in markets like vending machines is an area PayPal needs to focus on, mainly because the card players aren’t there yet. If they bring in more of the right people to complement their team – from the brick-and-mortar and retail worlds, processors, card associations, retail IT, and banks – they will still have a bright future as they diversify their brain trust.
Einar Rosenberg is a recognized expert in mobile payments who has written multiple papers and spoken internationally on the topics of NFC, RFID, location-based services and Bluetooth. Mr. Rosenberg is currently the CTO of Narian Technologies.