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NFC PAYMENTS AND MARKETING INNOVATION
Current State & Future Outlook

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NFC Payments and Marketing Innovation –
Current State & Future Outlook
The history of NFC technology goes back as far as 1983 when the first patent application of the foundation technology RFID was registered. It took another 20 years before the first important industry players like Nokia, Philips and Sony started to engage seriously by founding the NFC communication forum. Although the first NFC enabled mobile phone was already shown in 2006 mass market adoption has not been achieved yet. With advancements in technology and the support of Google, Apple and other mobile heavyweights NFC technology is finally expected to grow significantly and to enable completely new applications like ticketing, payment and advanced marketing concepts to just name a few. This study was conducted to gain a better understanding of the current state and future predictions for NFC-based contactless payment and related marketing concepts. It has been designed as an expert survey to gather point-of-views from professionals and specialists in the targeted field from around the world. The study was focused on four main areas which will provide an in-depth understanding of NFC-based contactless payment and aligned marketing concepts.

Impact of NFC-Contactless Payment on Marketing Innovation
“Who pays the bill? New marketing concepts reallocate budgets and are the secret sauce for success”
As there is no willingness to pay an extra fee for NFC a stakeholder is needed to subsidize the rollout and operations of this technology. It is clear consensus (73%) that new and innovative marketing concepts are the key for a broad adoption of NFC-based payment technology for consumers and merchants. The most beneficial marketing drivers (see figure 2) include functionalities that foster the understanding of consumer behavior in more detail and enable improved customer interaction. Generally the new technology is expected to improve customer retention and customer acquisition which requires advanced business intelligence options and improved customer analytics. The main application of NFC technology is seen for Discounts and Coupons (68%) and Loyalty Programs (65%). Under this premise it makes sense that marketing budgets are expected to shift from paper-coupons and sales promotions to NFC (figure 3). Although NFC contactless payment is best suited for direct sales and brand marketing there is an opportunity for trade marketing to bridge the gap between brand and customer and to support in- or near-store promotions.

Market adoption of NFC-Contactless Payment
“NFC based payment to become widely adopted within the next 3 years”
While NFC technology is available for a long time, mass market adoption has not yet been achieved. The decision of leading device manufacturers to support this technology, the support of payment processors and the evolvement of new business and marketing concepts are likely to boost the widespread application. This study found that NFC technology will become a standard component on all (premium and non-premium) smartphones (90%). This implies that NFC availability on consumer devices, starting in 2012, will be linear to smartphone market penetration ratios. The respondents of the study are confident that NFC-payment will be broadly adopted within the next three years. This study also reveals that NFC-Contactless Payment is not just about micropayment, it will be used for payments of up to 50 US$ in Europe and North America, in other regions even up to 100 US$ seem possible. Although NFC-based payment will grow massively it will not dominate the market alone, remote mobile payment will continue to co-exist. To ensure the projected growth, expected benefits of consumers and merchants have to be met (figure 1). Consumers demand highly integrated functionality in a single device as well as access to value added services like special deals, coupons or other services. Merchants expect to get better marketing options and reduced cost for their operations. To make this reality new business models have to be found which require new stakeholders because neither consumers (68%) nor merchants (78%) are expected to be willing to pay a transaction fee on top of other fees to get access to the new capabilities. Nonetheless more than 40% of respondents believe that merchants are willing to invest into the necessary infrastructure to upgrade their Point-of Sales systems and their card readers.

53%
Advanced customer analytics

Direct customer interaction, identification and analytics are seen as the main marketing drivers
53,8% 49,8% 48,4% 38,0% 35,3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% n = 221

Real-time interaction (e.g. direct respone in-store, in-store promotions) Location-based (in-store and near-store, position tracking)

Combination of online marketing with offline marketing Combination of time with location (e.g. daytime-dependent offers to increase store utilization)

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Benefits for Consumers
Plurality of functions in one device Use of value-added services Convenience at Point-of-Sale Sotring of multiple credit or debit card into one solution Trouble-free (no need to carry cash or cards) Improved transaction speed Sending money securely between towo devices Improved security 0%
n=221

Benefits for Merchants
71,5% 51,6% 48,9% 43,4% 43,4% 38,5% 23,1% Enabling new options for point-of-sale marketing Reduced cash handling and operating costs More efficient marketing budgets through NFC Reduced transaction times Improved reliability of transactions Ease of introduction to existing payment 60% 80% 100%
n=221

41%
59,3% 49,3% from Direct Sales promotions to NFC-based marketing 45,2% from Display Ads to NFC-based marketing 43,9% from TV Ads to NFC-based marketing from Radio Ads to NFC-based marketing from Outdoor Advertising to NFC-based marketing from Search Engine Marketing to NFC-based marketing

Believe that traditional coupons (paper based) will be the most affected, followed by direct sales promotions
41,4% 33,6% 18,8% 18,0% 14,8% 13,3% 11,7% 10,2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% n = 221

from Paper Coupons in newspapers to NFC-based marketing

from Newspaper/Magazine ads to NFC-based marketing

20,4%

17,2% 20% 40%

17,2% 0% 20% 40% 60% 80% 100%

Copyright © 2012 StrategyFacts – all rights reserved

Copyright © 2012 StrategyFacts – all rights reserved

Copyright © 2012 StrategyFacts – all rights reserved

Challenges and Implications for Players along the Value Chain
“Winners and losers – the game isn’t over yet; get your act together!”
Asked about the challenges the respondents believe that the general availability of NFC-enabled smartphones (72%) and trust in security and privacy (62%) will post the biggest challenges for consumers while merchants are struggling with additional cost to upgrade their Point-of-Sale infrastructure (82%) and missing interoperability standards (53%). NFC-based technology brings new players to the ecosystem and causes disruption in the value chain. Trust and Service Manager and Wallet Platforms are seen to have the best positioning with 38% believing that their business model is safe. Marketing Service Providers are expected to suffer. Although Wallet Platforms have a good starting position they are expected having to deal with disruption to their business model (36%) in the future if they stay focused on payment only; Marketing Service Providers and Card Issuers are also expected to be impacted significantly. Point-of-Sale Manufacturers and Merchants are seen to get the biggest operational benefits, specifically additional or new revenue streams and lowered cost. Network Operators (45%) and Marketing Service Providers (39%) are seen to have the best starting position to grow along the value chain. But there aren’t just winners - Card Issuers, payment-focused Wallet Platforms and Payment processors are expected to suffer the most – defensive strategies require careful thinking and execution. If Wallet Platforms take a strong integration role (e.g. as main service hub) they are well positioned.

Future Role of the Big 4 - Google, Apple, Amazon and Facebook
“Google and Apple will play – they will face stiff competition”
While Google is already in the market with Google Wallet and expected to be the strongest contender it will be closely followed by Apple. Amazon and Facebook aren’t seen as strong players (figure 4). Although equipped with valuable assets Google hasn’t won yet; whether Google’s approach with Google Wallet will help to rule competition and define the standards of the industry is not proven yet. Although Motorola can be seen as a strong asset, Google is not likely to benefit from it. Motorola is not seen as a Trojan horse for Google to manipulate the market; also the close integration of Google Services into Motorola devices is – at this time - not considered to be a big threat to competitors.

73%
Google Apple Amazon

Google is clearly expected to be in a dominant role, Apple follows –Amazon and Facebook are seen less dominant
73,3%

56,9%

25,3% n = 221

Facebook
0% 10% 20%

21,7%
30% 40% 50% 60% 70% 80% 90% 100%

Conclusion
NFC-contactless payment is at the turning point to become widely accepted. Although it will co-exist with other technologies the inherent marketing advantages will make it a winner in the mid-term. Closer interaction and more intimate knowledge about the consumer at the point of sale are the biggest drivers for success. The party which is able to monetize on this marketing opportunity and wisely supports the rollout of the technology will be

Copyright © 2012 StrategyFacts – all rights reserved

in a leading position. Whether this party will come from an existing market member or be one of the new contenders is not clear yet. The race is open and significant disruption to be expected. Read more in our full report with more than 270 pages of detailed data, deep analysis of various dimensions and significant additional insights into the future of NFC-contactless payment.

Description of the Study
Type: Method: Expert Group: Expert Research (Primary Research) Online Questionnaire Experts in the area of NFC, Contactless Payment and aligned value added services. Handpicked experts from around the globe and from various industry domains were identified and invited Survey Timeframe: Nov. 14th and Nov. 29th, 2011 Total Participants: 734 with 221 completed responses. Only completed online surveys were used for evaluation in this study

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StrategyFacts GmbH Dr. Ralf Kaumanns Managing Director kaumanns@strategyfacts.com