NFC Adoption Forecast Slow in North America, Western Europe, Next 2 Years

At least so far, near field communications (NFC) has not propelled the mobile payments business as fast as some had predicted. And Juniper Research has now scaled back its forecasts for NFC adoption in the North American and Western European markets, though not the South Korean and Japan forecasts.

To be sure, skepticism about NFC has been growing for years, despite some thinking that NFC and mobile payments would hit an inflection point in 2013. In fact, some might argue Juniper Research made the NFC transaction revenues reduction in 2013.

On the other hand, neither should near term sluggishness in adoption come as a surprise.

Even popular consumer innovations can take a decade or more to reach 10 percent adoption, when the underlying ecosystem is complex, and has to be built almost from scratch. Use of automated teller machine cards and debit cards provide an example.

As useful as those innovations are, it took a decade for each to reach 10 percent adoption by the public. NFC adoption arguably will be tougher as debit and ATM cards required consumers only to change behavior and use new plastic cards. NFC requires replacing merchant cash registers and requires users to buy NFC-capable smartphones.

Adoption of ATM and debit cards cost consumers virtually nothing, or very little, in terms of transaction costs.

Also, one might argue the value proposition for use of ATM cards and debit cards was easier to understand. Debit cards replaced checks and check charges. ATM cards allowed users to get cash, or make deposits, outside of normal banking hours.

Paying by phone might not offer so much value over using a debit card.

While the Juniper Research report finds that by 2017 the proportion of NFC-enabled smartphones will be only marginally below previous estimates, global NFC retail transaction values are now expected to reach $110 billion in 2017, significantly below the $180 billion previously forecast.

Apple’s decision to omit an NFC chipset from the iPhone 5 has reduced retailer and brand confidence in the technology, leading to reduced POS (Point of Sale) rollouts and fewer NFC campaigns.

In turn, this will lead to lower NFC visibility and adoption in the near term, at least in the North American and Western European markets, creating a “two year lag” on previous forecasts.

“While many vendors have introduced NFC-enabled smartphones, Apple’s decision is a significant blow for the technology, particularly given its previous successes in educating the wider public about new mobile services” said Dr. Windsor Holden, Juniper Research analyst. “Without their support, it will be even more difficult to persuade consumers – and retailers – to embrace what amounts to a wholly new means of payment.”

Conversely, retail transactions in NFC’s heartland in Japan and Korea are likely to experience little or no impact from the decision, Juniper Research forecasts.

Google Wallet and ISIS likewise have struggled to gain traction in the U.S. market, and both rely substantially on NFC.