There was big news yesterday out of the world of NFC and contactless. A collaborative effort between Inside Contactless, Sagem Orga and TazTag has produced a brand new NFC payments gizmo that is purported to be prescription for what ails NFC payments adoption. Described as the size of an ordinary credit card, the TazCard is a “special-purpose, Java-based handheld device capable of supporting a variety of NFC applications, including payments.” Execs say that the device will “enable card issuers to provide their customers with a viable NFC bridge–a key success factor towards market adoption of Mobile NFC payments” enabling such applications as identification, ticketing, loyalty, “and more.
So, let’s see. NFC has been impossible to grow in any meaningful way in most parts of the world as a plausible payments mechanism as a chip in a phone, as a tag on a phone, or as a chip on card. (Note: the obvious exceptions here are Octopus and a few narrow geographies such as Japan.) A sexier-looking card, with a smarter chip and a screen that is branded as a mobile payments device will *like magic* transform NFC into a mega-payments platform. I am reaching for the kool-aid cup as I write.
On the plus side, I applaud the recognition on the part of the development team that using a chip just to authorize payments at the point of sale seems like a waste of a powerful technology opportunity. Chips can be made much smarter than that and this is an effort to utilize that power and utility for the benefit of applications that add value to consumers. So, that seems like a theoretical step in the right direction.
On the negative side, as the song goes, there are a few. NFC has failed to ignite for many reasons, not the least of which is the lack of merchant acceptance points that enable NFC transactions. Maybe the thinking here is that these new devices are easier and faster to get into circulation than waiting for mobile handsets to be enabled with chips. The theory could be that more people will be running around sooner with these things and so merchants might be persuaded to invest in new equipment. I doubt it. There are millions of contactless cards in circulation already and increasing numbers of contactless stickers in the US and merchants have, by and large, not budged – citing the lack of a compelling business case that would change their minds.
Then there is the consumer side. Consumers have their phones with them almost 24/7. As these phones become more connected to the Internet, they also become increasingly smarter and more functional and able to support loyalty, ticketing and other nifty applications. These same consumers also have cards with mag stripes in their wallets that work pretty well when they want to use them at various points of sale. TazTag is now introducing yet a third device for consumers to have to buy (although it is not clear how these will be distributed) and then carry around. At best, they could be considered redundant, at worst, irrelevant, if there aren’t places where they can be used. I guess it’s possible that in closed environments where these cards double as access cards to buildings or college dorms it might be plausible, but even then, what is the case for glombing payments onto that device? Will the consumer feel that it is safe and a real value add? Or will they just be stressed out about it because it is one more thing to carry, worry about losing or having someone take from their desk drawer.
As I said, I am dubious.
As we all know, payments is a platform business – and a complicated one at that. Achieving the ignition that is essential to creating self sustaining – and profitable – network effects is the holy grail. And, it is tough to do. Many have tried and few have succeeded. It requires getting at least two sides of the platform on board – merchants and cardholders – and a lot of new entrants underestimate the complexity and degree of difficulty involved in doing that. Getting merchants and consumers to change behavior and invest in new ways of doing business – especially since most don’t feel that anything is broken enough to invest in making a wholesale change –isnt a given. The TazCard is forcing change on both sides of the platform without having either side on board to create the leverage that would be useful to persuade the other that it will miss out if it doesn’t hurry up and jump in.
For me, what this announcement really revealed is the larger debate that is going on in the payments industry with respect to innovation. Will innovation be ignited by applications that use the cloud to leverage existing infrastructure to make the mag stripe card that we carry around in our wallets smarter at the point of sale? Or, will it be ignited by chips (in cards, in phones, on phones, etc.) that act like little computers and enable innovation at POS outfitted with devices that enable that new and improved functionality?
I think that the answer could actually be both, depending on where you are in the world, and how the platforms are engineered to ignite the innovation that is being delivered by aspiring entrepreneurs. What is true for both, however, is the importance of having an ignition strategy that drives critical mass. As we’ve seen many, many times before, just having cool technology that enables interesting capabilities may excite investors, initially, but isn’t enough to sustain a successful payments platform.
Karen Webster is the President of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.
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