An NFC payments month in Japan and why NFC payments will be adopted quickly elsewhere

The sun isn’t the only thing that rises in Japan as NFC payments explode month on month. More and more research firms in the western world predict that mobile NFC payments will be slow to take off and businesses are said to be skeptical about the rate at which NFC will flourish as a payments method. Just this last week, PayPal’s CEO said his firm wasn’t launching any NFC mobile wallet or merchant programs anytime soon, and he thought that NFC payments would take time to become mainstream. We don’t work for research houses, but are subjected to as many figures and something is not gelling with a lot of the research and said attitudes of business leaders out there, so we thought we would take a closer look.

NFC payments in Japan

Japan has had its NFC payments infrastructure in place for a while now and so represents a likely model for the rest of the planet. Most research findings are projections because this is a new industry, but looking back on actual figures are less speculative and Japan is the only market that has history that is chartable. Let’s cast our minds all the way back to February this year, which seems like an eternity ago in the world of NFC payments, and to ComScore’s report on NFC payments in Japan.

In Japan, there is a population of 127.5 million people, out of which there are 111 million mobile subscribers, 92.5 million of them use mobile data services – that’s 83 percent of the subscriber base, or 72 percent of the population according to Telecommunications Carriers Association Japan. So we can see we have a developed market and whereas these figures may not compare to the continent of Europe or North America, it does represent a sizable population of consumers. ComScore found that in December 2010 alone, 9.8 million or 10 percent of Japanese mobile subscribers used their mobile wallet to make a purchase. Here are those figures broken down more for the analytical types: 7.6 million consumers made an NFC payments purchase in a retail/convenience store; 3.2 million purchased from a vending machine using mobile NFC payments; 2.7 million paid for public transport; 2.6 million purchased in a grocery stores; and 1.5 million paid a restaurant bill all using their mobile phone for NFC payments, instead of cash, card or check.

These figures will have only risen since December last year and when you consider that this adoption has only been happening for three years with inferior technology to what we have now, we think you will agree that adoption is robust for both merchants and mobile subscribers. However, the figures get even more impressive when you consider 47 million Japanese have adopted tap-and-go phones in three years – this is one of the fastest roll outs of electronic products in human history, according to IDTech Ex in February.

Okay, NFC payments have taken off in Japan, but isn’t that unique in its adoption?

In a word, no, it isn’t. KPMG recently released a study that shows that businesses expect NFC payments to have slow adoption, but real world evidence suggests the opposite for different reasons in each market.

“The use of mobile phones as a payment alternative to cash, checks or credit cards looks set to increase significantly,” was stated in the July 2011 KMPG 2011 Mobile Payments Outlook. In order to assess the mobile payments market, KPMG conducted a global online survey of 970 companies between the period of September 2010 and February 2011. What was interesting was that the figures given by businesses contradicted themselves, dependent on the question they were asked with regards to NFC payments. While the majority of the business leaders surveyed believe consumers are currently concerned about security and privacy when using mobile devices, they believe other factors are more compelling attributes of a successful mobile payment strategy. Specifically, 81 percent feel convenience is the highest attribute, followed by ease of use, at 73 percent.

Everybody knows mobile payments will matter. In fact, the majority of companies surveyed  by KMPG or 58 percent have a mobile payments strategy in place today, and half of those are already offering a mobile payments service. Nearly one in five respondents said that mobile payments are very important today. But 54 percent  believe that, while NFC payments will be reasonably important in the future, today they are in their infancy. Most companies KPMG surveyed assess that it will take two to four years for mobile NFC payments to move into the mainstream in their primary region of business. KPMG believes that exploding smartphone growth, new applications, and economic opportunities will grow mobile NFC payments at a much faster rate than respondents anticipate. If we then look back at Japan, we can see that this is in fact what happened. What most businesses don’t seem to be accepting is how much the financial processors and credit card companies have to gain by displacing cash and how determined they are to reduce the amount of cash transactions that occur on a daily basis so that they can make money on this vast untapped payments market and that NFC payments is the largest opportunity they have ever had to grow their markets. Education, marketing and NFC devices will fuel growth over the next year and many respondents to KMPG’s study may find that they need to put their strategies in place long before they had anticipated, and that includes PayPal.

NFC payments for the unbanked will fuel adoption in developing markets

NFC payments isn’t only a product that will impact developed markets. In India today, mobile phone connections outnumber bank accounts by more than a factor of three. India has eight hundred million mobile phone subscribers and 250 million bank accounts. The National Payment Council of India’s (NPCI) launching of the Interbank Mobile Payment Service (IMPS) allows a person to pay/remit money to a merchant or an individual in real-time using a mobile phone number and a mobile phone identifier.

“Mobile payments not only reduce cost of service, but also open a huge market for participants. Further, payment interactions deepen understanding of customer behavior – a recipe for success,” says Kunal Pande, Director at KPMG in India.

As NFC technology gets more cost effective, most subscribers are likely to switch to NFC payment solutions over the next few years and that is not even considering the use of SIM based NFC flexible-antennas or NFC stickers that can add NFC payments abilities to current mobile phones. The unbanked phenomena is not only present in India but exists all around the world. For example, in Uganda, MTN Uganda attracted 16 percent of its customers to its mobile money service in its initial 13 months, and reports that approximately 60 percent of its transfers are to ‘unbanked’ customers in rural areas.

Japan may have given us a glimpse at how fast NFC payments can be adopted, but there are signs all around the world of the technology taking hold faster than many people yet perceive. Only time will tell and much is dependent on NFC payment providers launching in markets quickly. We want to know what you think, will NFC payments adoption take off like a rocket or creep in like a teenager past their curfew? Use the comments below for your NFC opinions.