Gartner: Mass NFC mobile payments adoption won’t happen until 2014, US consumers not ready

The facts, statistics and projections are still flying around attempting to pin point when NFC mobile payments will be the subject of mass adoption. Projections vary wildly between research houses as to the how much, when and how NFC mobile payments will take off. Gartner has now released some more interesting figures for us to mull over that suggest NFC adoption may not happen as quickly as many industry insiders have expected or hoped for. So, let’s dig straight into the figures.

Gartner projections for global mobile payments

Mobile payments users are due to surpass 141.1 million in 2011, and whereas that is not a massive amount, it does represent an increase of 38.2% over 2010. This figure will be achieved thanks to growth from the 102.1 million mobile payment users who mobile payments adopted the technology in 2010. In actual cash that represents $48.9 billion in 2010 which is set to grow to $86.1 billion in 2011. Overall that represents a growth factor of 75.9% and shows spend levels on a per user basis rising as mobile payments become more commonplace.

“In developing markets, despite favorable conditions for mobile payment, growth is not as strong as was anticipated. Many service providers are yet to adapt their strategies to local requirements, and success models from Kenya and the Philippines are unlikely to be translated to other markets,” said Sandy Shen, Research Director at Gartner. “While developing markets have favorable conditions for mobile payments, such as high penetration of mobile devices and low banking penetration, this is no guarantee of success, unless service providers adapt their strategies to local market requirements.”

One of the main issues facing the growth of NFC mobile payments is the infrastructure and operating experience that is just not in place at this time. After looking at dozens of these reports, we are not sure that it will be a matter of consumer demand, but consumer education may add to the slower take-up rate that results in NFC adoption. Another problem faced by developing markets is the fact that such a vast amount of the mobile payments population remains unbanked, which places that demographic of people with a steep hill to climb in utilizing NFC mobile payments. Amazingly, 10% of the world’s population rely on family in foreign countries sending money home to live, so mobile payments are expected to gain massive adoption as in many cases in developing markets mobile phones are more prevalent thanmobile payments homes with running water. Companies like Margento already have solutions in the market to embrace this new form of money transfers.

“Money transfers and prepaid top-ups will drive transaction volumes in developing markets. These are seen as the ‘killer apps’ in developing markets, where people value the convenience of sending money to relatives and topping up mobile accounts. This is most obvious in Eastern Europe, the Middle East and Africa, where these two services will account for 54 percent and 32 percent of all transactions in 2011,” said Shen.

“In developed markets, companies are trumpeting the prospects of Near Field Communication (NFC) without realizing the complexity of the service model. We believe mass market adoption of NFC payments is at least four years away,” Ms. Shen said. “The biggest hurdle is the need to change user behavior by convincing consumers to pay with mobile phones instead of cash and cards,” Shen added.

And again, this appears to be an educational process that needs to take place. In every bank, there should be a representative educating customers, “pay with your mobile” signs need to be placed in supermarkets and the card issuers should launch campaigns that offer easy NFC payment sign up processes to consumers, presented as an upgrade. NFC secure element can also store driving licenses and other forms of identification, and if federal, or governmental departments embrace this form of ID, it could again strengthen and quicken adoption of NFC mobile payments. Security is another point that needs to be featured and should be at the heart of all messaging and branding. At the end of the day, with the security features that have been added to NFC mobile wallets they represent more security than cash or credit cards but the public is unaware of that fact and remain cautious. Of course, there are security risks with new technology like this just as there would be with any other technology, but on the whole NFC mobile payments are safe and could be made even safer with the use of biometrics in phones.

What technology will be used to access mobile payments and NFC?

With most phones in the world still being dumb phones, SMS, or Short Message Service and USSD, or Unstructured Service Data, are still the main ways in which people access technology via their mobile phones. This is especially true in developing markets. There are mobile payment options available that make use of SMS and these will become more prevalent in developing countries according to the Gartner data. Another option is NFC stickers which have already started being deployed in Tanzania, Africa by Zantel, MasterCard.

Gartner expects Short Message Service (SMS) and Unstructured Supplementary Service Data (USSD) to remain the dominant access technologies in developing markets due to the constraints of mobile phones. Wireless Application Protocol (WAP) will remain the preferred mobile access technology in developed markets, where the mobile Internet is commonly available and activated on the phone. Mobile app downloads and mobile commerce are the main drivers of WAP payments, and WAP will account for almost 90 percent of all mobile transactions in North America and about 70 percent in Western Europe in 2011.

“Thanks to the success of mobile application stores, such as Apple’s App Store, and the efforts in driving mobile sales by major retailers, such as Amazon and eBay, merchandise purchases far outweigh other use cases in developed markets, which include North America and Western Europe,” Ms. Shen said. “We predict that in 2011, merchandise purchases will account for 90 percent and 77 percent of all transactions in North America and Western Europe, respectively.”

This pertains to the expected explosion in digital goods that other research houses expect to see massive growth. Another impact on this projection is that services are currently purchased in brick and mortar stores where many merchandisable goods have moved to the internet for sales.