P2P use cases will get NFC started in the US

I came across an interesting post by Celent on Mobile NFC. This report claims that cash displacement is the main motivation behind Mobile NFC deployment. The report claims that there will be an annual revenue increase of $1.83 per debit card for banks.

I agree that cash displacement is a major driver. For small-value transactions, e.g., at a fast-food restaurant or at a drug store, both the merchant and the consumer would like to get thru' the checkout lines quickly. Eliminating cash handling, doing away with signatures for payment card authorizations are definitely desirable.

If banks stand to make $1.83 per card per year from Mobile NFC, there is very little incentive for mobile operators to invest in NFC technology on handsets in the US. Payment cards, the purported killer app in mobile NFC, become marginal. Other apps on Mobile NFC, such as, Loyalty cards and coupons are stretch goals and would become difficult to fund.

Looking at Japan as a trendsetter, Lars (Mobikyo, Japan) had these insights to share:

• Cash replacement is a major use case across a variety of locations, including quick-serve restaurants (QSRs), convenience stores, transit (trains, buses and taxis) and vending machines
• Exchange of information is a major category: Smart posters providing coupons, receive and redeem coupons, tickets..., access information (to unlock a PC)...

These use cases have been the mantra of NFC practitioners the world over. What is daunting about these use cases is that the 'network' is a critical component, which makes NFC deployment a classic chicken-n-egg situation.

P2P (Peer-to-Peer) use cases may help break the NFC logjam in the US. For e.g., when I buy my fancy mobile phone with Bluetooth (obviously this is a 2005/6 scenario), all I need is my fancy Bluetooth headset to start using Bluetooth. I don't have to wait for the ecosystem to be enabled and up-n-running. This instant gratification is necessary for people to fork out their valuable money for new features/gizmos, and get the market going.

We need such P2P instant gratification use cases for Mobile NFC. Exchange of business cards is an example of P2P mobile NFC (if you recall, this use case was used during the early days of Bluetooth as well). However, these uses cases have to substantial (from a business model perspective, to justify OEMs/operators to invest in NFC).

What do you think will help get mobile NFC started in the US?

End of independent mobile payment players?

It is difficult to have missed the news (here, here, here) about Obopay receiving $70 million from Nokia. This is on top of the earlier round (Series D) of $20 million in April 2008.

What does this investment indicate:

• Obopay's CEO is skilled in raising money (you'll find this interview interesting)
  
• Mobile payments industry is at an inflection point, and on the verge of take-off
• Nokia sees Obopay as best suited to take advantage of the opportunity.
  
• Nokia is seeing Obopay as its next billion dollar baby?
  

One of the signs of an emerging industry crossing the chasm is investments from the large players. This happened in the email space (Microsoft buying Hotmail...), Online Advertising (Yahoo/Blue Lithium; Microsoft/aQuantive)... Startups many a times do not have the ability to scale quickly to address the available market efficiently. Alternatively, the economics of the space do not justify a startup building out the sales, delivery and service infrastructure. In such cases, an existing player buys a startup to either move up the value chain or to increase the breadth of their offering.

Does Nokia's interest in Obopay suggest this?

Obopay has alliances with scheme operators (MasterCard), banks (Citi, Yes), carriers (Verizon) and device vendors (Qualcomm, Blackberry, Nokia).

Any of the above partners could have made a large investment. Qualcomm in an existing investor in Obopay. Does Nokia's investment indicate that the device vendors have an inside track to leverage the mobile payments market. Would a payment scheme operator or a telecom operator have been able to grow the mobile payments market better than a mobile device vendor?

In terms of registered users and money flowing thru the system, PayPal mobile seems to be the front-runner in mobile P2P payments in the US. mChek seems to be the front-runner in India.

Does Obopay have strategic alliances or IP that can block these early leaders? Can Nokia help Obopay move ahead. Has there been any development in the recent past to indicate the slumbering mobile payments industry is getting ready to sprint?

Are mChek and PayMate next in line for a bear hug?

What are your thoughts?

Obama effect on payments innovations?!

At a personal level, Obama's victory provides hope and optimism of a new tomorrow. Given the prevailing mood, hope and optimism are the engines that will get the US back on its feet again and restore its place as the leader of the free world. However, the expectations on President-elect Obama and his administration might be a little too much for any mortal to bear, even though that mortal might be Barack Obama

I was keeping this post for the new year. As all of us are being carried away by the developments of this week, I figured it is appropriate to gaze into the crystal ball (and again in the New Year).

Positive Trends

• More use of debit cards, resulting in a cheaper tender for merchants (PIN Debit).
  
• Alternative payment systems to reduce cost of accepting payment cards
• Consolidation among players in the P2P and alternative payments space
• Government use of payment cards to distribute social security and other benefits to citizens
  
• Initial usage models of Android phones-based applications to bridge online and retail
  

Negative

• Commercial deployments of NFC will be delayed
• Delay in deployment of contactless readers at retailers
• Mass transit, the beneficiary of high gasoline prices, might be collateral damage as cities struggle to invest over the next couple of years. The reason this aspect shows up here is because Mass Transit payments have led the deployment of contactless acceptance infrastructure
  

Initial indicators suggest that markets, such as, India have not been affected very badly. It will be interesting to watch for any innovations in the payments space from emerging markets.