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Who Wins with NFC-Based Mobile Payments?

image Now we can stop speculating and begin to plan strategies for the new NFC-in-the-phone world. Google CEO Eric Schmidt announced that an NFC phone running Android Gingerbread would be available “within a few weeks.” He even demoed the NFC capability on stage on what is thought to be a new phone called Nexus S. He showed a location check-in, not a payment (see video below, first 6 minutes cover the NFC announcement).

You can be sure Apple will not let itself be out-innovated on NFC, so expect NFC on the iPhone 5 next summer. So what, if anything, does this mean for banks and credit unions?

There’s much to be determined still, depending on how much control Apple and the carriers try to exert. The Isis venture from AT&T, T-Mobile, and Verizon is an indicator that the U.S. telecom giants are actively looking to gain an foothold in mobile payments. And it’s not like the huge card issuers and MasterCard/Visa are going to sit on the sidelines. No one knows how it will play out. 

But it’s interesting to try to figure out who stands to gain, and lose, from the inevitable move from plastic to mobile device. One aspect I hadn’t though about was brought to my attention in a conversation with M-Com’s Serge Van Dam yesterday. He pointed out one likely consequence of virtual cards running in phones: the resurgence of retail store-branded “charge cards” (non-Visa/MC).   

By making store cards virtual, almost any size merchant will be able to jump on the loyalty bandwagon issuing their own virtual loyalty/charge “card” hooked directly to customer bank accounts (or PayPal), avoiding Visa/MasterCard interchange. It’s a decoupled debit play, but without the expense/infrastructure of issuing plastic cards.

Here’s my list of possible winners in the NFC world. What do you think?

Potential winners:

  • As outlined above, the small merchant that uses virtual loyalty cards (i.e., in mobile apps) to compete with the bigger players
  • Larger merchants that may be able to cut their interchange costs by routing virtual store card transactions away from MasterCard/Visa/Amex
  • Mobile payment/commerce startups and clever financial institutions (including PayPal) that figure out ways to add value in the new NFC-enabled world (note 1)
  • Mobile telecom players (carriers, networks, and Apple) that derive income from the increase in mobile commerce and advertising
  • Card issuers, if NFC capabilities drive fraud losses down
  • Consumers, who gain convenience by no longer needing to carry a wallet full of debit, credit and loyalty cards around

Potential losers:

  • Incumbent payments brands, especially MasterCard/Visa/Amex, who could lose interchange revenue to upstarts

Google’s Eric Schmidt shows first NFC phone running Android
Note: NFC demo is in first six minutes

1. My favorite quote from Google CEO Eric Schmidt’s remarks in the video above,” (NFC) will result in 500 new mobile payments startups.”
2. Picture credit: