Report: Vast Majority of Consumers Will Need Push to Use NFC Payment
Fewer than 2% of consumers are “highly likely” to adopt NFC payments immediately after the technology is rolled out, according to UK-based research firm Datamonitor.
The firm, in a recently published report, projected that another 12.2% of consumers have a medium likelihood of adopting NFC payments right after it’s introduced and more than 31% have only a low likelihood of using the technology for payments in the short term. The remainder of consumers–more than half–are considered “unlikely” to adopt NFC payments, said the firm.
Except for consumers who are highly likely to embrace NFC payments, issuers, mobile-wallet providers and others introducing NFC payment services will need to offer incentives to consumers to encourage them to adopt the technology, and this adoption will likely take longer, said Datamonitor in its report, NFC Payments.
‘Breathless PR’
The firm notes that there is debate over whether NFC will break through to mainstream consumers this year or in 2012. But there is little discussion about what actually constitutes a breakthrough.
“While the hype continues to grow, and the breathless PR statements of excited executives enter into circulation, little attention has seemingly been paid to who are the consumers most likely to adopt NFC,” said the firm in its report. “While mobile phone technology has progressed rapidly over several years, and Internet usage increasingly becomes mobile, this does not necessarily mean that consumers are clamoring for NFC.”
The research firm based its predictions of how likely consumers are to adopt NFC on three indicators–how much the consumers now use mobile banking and contactless cards or are interested in these technologies, and how frequently they use conventional payment cards to make retail payments.
This data comes from Datamonitor’s 2010 global Financial Services Consumer Insight Survey, which polled more than 12,000 consumers online in more than 15 countries. The large annual survey covers a range of financial services, including retail banking, cards and payments and insurance.
Consumers in a given country would be considered highly likely to adopt NFC if they said they use or show interest in mobile banking and contactless payment, and if they also use conventional cards frequently for retail payments, said Datamonitor.
Consumers who fall into two of the three categories are considered to have a medium likelihood of adopting NFC. And if they fall into only one of the categories, Datamonitor would classify them as having a low likelihood of adopting NFC immediately.
Most consumers surveyed–at 54.3%–do not use mobile banking or contactless cards and do not use conventional payment cards frequently so are considered “unlikely” to adopt NFC payment initially. That figure is likely to decrease over time, however, with use of smartphones growing rapidly and more contactless payment cards and terminals becoming available, the firm said.
Using this “NFC Adoption Model,” Datamonitor gave the highest score to Brazil, where the report estimates 5.1% of consumers are highly likely to adopt NFC, followed by South Korea at 4.2% and Singapore at 3.9%. By contrast, only 0.4% of consumers in the Netherlands and Italy are highly likely to adopt NFC in the short term, according to the model. Surprisingly, the United States comes in at only 0.5% of consumers being highly likely to adopt NFC.
The high score in Brazil appears to be an anomaly, since the penetration of all types of payment terminals is relatively low. Datamonitor explains the score by saying mobile banking and other mobile-money services, such as remittances, are on the rise there.
“(And) many consumers there are keen to switch to cashless payments, and where consumers do have payment cards, including prepaid, these tend to get used very frequently, which helps to drive up their overall likelihood of NFC adoption,” said Gilles Ubaghs, senior analyst for cards and payments at Datamonitor.
Early Adopters Not the 18-to-24 Crowd
While small, at 1.8%, the highly likely adopters across all countries still are a potentially lucrative segment for NFC service providers. They tend to be older and have more money than might be expected, said Datamonitor.
Just under 37% of the consumers in this highly likely category globally are between the ages of 35 and 49 and another 33.8% are 25 to 34. About 16% have incomes placing them in the top quarter of respondents, and 44% have an income level in the top half, said the firm.
Datamonitor acknowledges that basing its projections of adoption of NFC payment on existing use or interest in mobile banking, contactless payment and frequency of use of conventional payment cards is not precise and is only “indicative” of the likelihood that consumers will use their phones to tap to pay.
But there is little solid data on which to base the projections for NFC adoption among consumers, notes Ubaghs. That includes a lack of meaningful data from the results of numerous NFC trials conducted over the past few years, he contends.
“Our view is that there is quite an irony in the fact that many in the industry take it as a given that consumers want to use mobile payments and point at trial results as proof that consumers love it,” he told NFC Times. “In all these trials, consumers were given an incentive to use these phones and take part.”
Incentives Required for Adoption by Masses
That includes such high-profile NFC trials as one launched in late 2007 by Telefónica (O2) UK, Barclaycard and Transport for London, which gave users in London spending money preloaded on the phones. Citigroup in Bangalore, India, held a large trial in 2009, in which it gave participants a chance to get the phone they used in the pilot for free if they conducted just a dozen transactions.
“If people are effectively being paid to use something in a trial, it’s not surprising that results are so positive,” said Ubaghs. “The groups conducting these trials then state that they had to provide incentives to get people to participate, but that stands for the real world as well. It strikes me as a bit of a myth that seems to keep circulating that consumers are clamoring for it.”
He also pointed to the NFC commercial payment services launched by Barclaycard and Orange UK in May, offering consumers £10 (US$16.07) cash added to their prepaid mobile payment accounts upon activation. And users can receive 10% cash back on all purchases made with the phone in the first three months. This generous offer is designed to encourage users not predisposed to use the technology to give it a try.
In addition, NTT DoCoMo reportedly saw significant gains in use of its contactless wallet phones by Japanese consumers after introducing contactless-mobile couponing. The response of Japanese consumers to contactless m-payment by itself was lackluster for years following the rollout of wallet phones, launched by DoCoMo in 2004.
The Datamonitor report overall states that there is a large opportunity for NFC service providers to encourage consumers to use NFC outside of the highly likely category–especially among consumers in the medium and low likelihood categories. And the NFC payments ecosystem is finally gearing up, with NFC handsets and mobile wallets launching this year, the report notes.
But the task of persuading most users to change their habits and to tap NFC phones to pay will not be easy, said Datamonitor.
“The market faces significant hurdles in convincing issuers, consumers, and merchants of its benefits,” said firm in a statement. “The business case remains ill-defined for both issuers and merchants, while consumers will need a strong proposition to shift them from existing, readily available payment tools. Without all of these elements in place, the deployment and wider development of NFC will be difficult.”
Except for consumers who are highly likely to embrace NFC payments, issuers, mobile-wallet providers and others introducing NFC payment services will need to offer incentives to consumers to encourage them to adopt the technology, and this adoption will likely take longer, said Datamonitor in its report, NFC Payments.
‘Breathless PR’
The firm notes that there is debate over whether NFC will break through to mainstream consumers this year or in 2012. But there is little discussion about what actually constitutes a breakthrough.
“While the hype continues to grow, and the breathless PR statements of excited executives enter into circulation, little attention has seemingly been paid to who are the consumers most likely to adopt NFC,” said the firm in its report. “While mobile phone technology has progressed rapidly over several years, and Internet usage increasingly becomes mobile, this does not necessarily mean that consumers are clamoring for NFC.”
The research firm based its predictions of how likely consumers are to adopt NFC on three indicators–how much the consumers now use mobile banking and contactless cards or are interested in these technologies, and how frequently they use conventional payment cards to make retail payments.
This data comes from Datamonitor’s 2010 global Financial Services Consumer Insight Survey, which polled more than 12,000 consumers online in more than 15 countries. The large annual survey covers a range of financial services, including retail banking, cards and payments and insurance.
Consumers in a given country would be considered highly likely to adopt NFC if they said they use or show interest in mobile banking and contactless payment, and if they also use conventional cards frequently for retail payments, said Datamonitor.
Consumers who fall into two of the three categories are considered to have a medium likelihood of adopting NFC. And if they fall into only one of the categories, Datamonitor would classify them as having a low likelihood of adopting NFC immediately.
Most consumers surveyed–at 54.3%–do not use mobile banking or contactless cards and do not use conventional payment cards frequently so are considered “unlikely” to adopt NFC payment initially. That figure is likely to decrease over time, however, with use of smartphones growing rapidly and more contactless payment cards and terminals becoming available, the firm said.
Using this “NFC Adoption Model,” Datamonitor gave the highest score to Brazil, where the report estimates 5.1% of consumers are highly likely to adopt NFC, followed by South Korea at 4.2% and Singapore at 3.9%. By contrast, only 0.4% of consumers in the Netherlands and Italy are highly likely to adopt NFC in the short term, according to the model. Surprisingly, the United States comes in at only 0.5% of consumers being highly likely to adopt NFC.
The high score in Brazil appears to be an anomaly, since the penetration of all types of payment terminals is relatively low. Datamonitor explains the score by saying mobile banking and other mobile-money services, such as remittances, are on the rise there.
“(And) many consumers there are keen to switch to cashless payments, and where consumers do have payment cards, including prepaid, these tend to get used very frequently, which helps to drive up their overall likelihood of NFC adoption,” said Gilles Ubaghs, senior analyst for cards and payments at Datamonitor.
Early Adopters Not the 18-to-24 Crowd
While small, at 1.8%, the highly likely adopters across all countries still are a potentially lucrative segment for NFC service providers. They tend to be older and have more money than might be expected, said Datamonitor.
Just under 37% of the consumers in this highly likely category globally are between the ages of 35 and 49 and another 33.8% are 25 to 34. About 16% have incomes placing them in the top quarter of respondents, and 44% have an income level in the top half, said the firm.
Datamonitor acknowledges that basing its projections of adoption of NFC payment on existing use or interest in mobile banking, contactless payment and frequency of use of conventional payment cards is not precise and is only “indicative” of the likelihood that consumers will use their phones to tap to pay.
But there is little solid data on which to base the projections for NFC adoption among consumers, notes Ubaghs. That includes a lack of meaningful data from the results of numerous NFC trials conducted over the past few years, he contends.
“Our view is that there is quite an irony in the fact that many in the industry take it as a given that consumers want to use mobile payments and point at trial results as proof that consumers love it,” he told NFC Times. “In all these trials, consumers were given an incentive to use these phones and take part.”
Incentives Required for Adoption by Masses
That includes such high-profile NFC trials as one launched in late 2007 by Telefónica (O2) UK, Barclaycard and Transport for London, which gave users in London spending money preloaded on the phones. Citigroup in Bangalore, India, held a large trial in 2009, in which it gave participants a chance to get the phone they used in the pilot for free if they conducted just a dozen transactions.
“If people are effectively being paid to use something in a trial, it’s not surprising that results are so positive,” said Ubaghs. “The groups conducting these trials then state that they had to provide incentives to get people to participate, but that stands for the real world as well. It strikes me as a bit of a myth that seems to keep circulating that consumers are clamoring for it.”
He also pointed to the NFC commercial payment services launched by Barclaycard and Orange UK in May, offering consumers £10 (US$16.07) cash added to their prepaid mobile payment accounts upon activation. And users can receive 10% cash back on all purchases made with the phone in the first three months. This generous offer is designed to encourage users not predisposed to use the technology to give it a try.
In addition, NTT DoCoMo reportedly saw significant gains in use of its contactless wallet phones by Japanese consumers after introducing contactless-mobile couponing. The response of Japanese consumers to contactless m-payment by itself was lackluster for years following the rollout of wallet phones, launched by DoCoMo in 2004.
The Datamonitor report overall states that there is a large opportunity for NFC service providers to encourage consumers to use NFC outside of the highly likely category–especially among consumers in the medium and low likelihood categories. And the NFC payments ecosystem is finally gearing up, with NFC handsets and mobile wallets launching this year, the report notes.
But the task of persuading most users to change their habits and to tap NFC phones to pay will not be easy, said Datamonitor.
“The market faces significant hurdles in convincing issuers, consumers, and merchants of its benefits,” said firm in a statement. “The business case remains ill-defined for both issuers and merchants, while consumers will need a strong proposition to shift them from existing, readily available payment tools. Without all of these elements in place, the deployment and wider development of NFC will be difficult.”
