Why NFC-enabled POS terminal deployments is likely to be an 'all or nothing' decision

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...any direct bank participation at all.

In the operator-centric mobile-banking model, there is no direct involvement of a bank other than as a sponsoring bank (i.e., a safe-keeper of surplus funds - the float account). In this model, customers are provided with a mobile wallet - a mobile-enabled stored value account (SVA) - and it is the mobile operator that performs all banking functions, including transaction processing and deposit holding as well as sales and distribution of the service. Customers can process transactions between SVAs in real time and the system typically reconciles accounts on a daily basis via the sponsoring bank’s float account. So, even in these operator-centric models, a bank must be involved to some degree.

The fact that mobile operators rather than banks have led the way in deploying mobile banking services in many markets can be attributed to a number of reasons:

Retailers in busy urban centers are more likely to want NFC than those in sleepier suburbs or provincial towns. The initial crop of NFC POS terminals in the UK, for example, has been seen primarily in London. But retail chains don’t like deploying multiple types of terminal across their footprint, they like to deploy the same terminals and accompanying infrastructure in every store to cut down on complexity and maintenance costs.

Therefore, it is unlikely that big chains will choose to focus NFC-enabled POS terminal deployments on their busiest stores only. It is most likely to be an 'all or nothing' decision - unless stand-alone NFC readers that sit alongside the main POS terminals are being deployed (see fig. 8). Stand-alone readers have been typically deployed by early-to-market retailers, in some cases subsidized by card-payment networks and banks; for example, Visa told Informa that it has contributed to the cost of early deployments as a way of kick-starting the market.

Fig. 8: Stand-alone and integrated NFC point-of-sale terminals

Mobile wallets and NFC also provide retailers with the chance to make their 'closed-loop' store payment cards more prominent, against the increasing dominance of the 'open-loop' card networks belonging to Visa and MasterCard. Retailers have long sought to reduce the fees they pay on card payments by issuing their own store cards and offering customers discounts and other incentives to pay with these instead of their bank cards.

Store cards come in various forms, including: private-label credit, prepaid or gift cards; cobranded retailer cards; PIN debit cards; lower fee-based branded cards; and cards that process transactions over automated-clearinghouse networks. But these closed-loop cards - so called because they are only accepted at the issuing-retailer’s stores - have been fighting a losing battle over the past two decades against open-loop bank cards that can be used in all stores.

With most wallets already stuffed with plastic, it is more likely that people will leave their store cards at home and just take their Visa or MasterCard bank cards when going out shopping.

The limited space in physical wallets could, however, be overcome by digitizing cards and placing them in mobile wallets. Retailers could also use NFC and mobile wallets to integrate store cards with loyalty points and offers such as coupons.

Service deployment strategy

There are two main models for deploying POS terminals in retail outlets: one is followed primarily by large retailers and the other primarily by small-to-medium-sized retailers. Large retailers with big chains tend to buy and install their own terminals and integrate them into their own IT systems. Smaller retailers tend to rent terminals from banks.

In the latter model, there is a greater chance of influencing the kind of POS technology deployed by retailers. Banks that are issuing NFC-enabled payment cards are also likely to push NFC-enabled POS terminals to their business clients.

In the longer term, rather than adding to retailers' POS infrastructure bill, NFC could potentially reduce it by obviating the need for checkout counters. Retailers are keen to reduce POS staffing costs and, to that end, are introducing self-service checkout counters.

For more on this topic, check out Informa Telecoms & Media's report M-Commerce: Outlook for mobile payments, banking and NFC services from where this article has been extracted.

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