It’s a pretty good bet that the iPhone 5 will feature Near Field Communication, or NFC and so will Windows Phone 8 devices. With Google Wallet and Android devices already announced with NFC, this means that 2013 will be the year that the US and European markets finally see mobile commerce come to fruition.
Of course, hype about mobile commerce has been around for a long time, and there are many players already in the market. However, adoption has been very slow, especially when you compare the US with Japan where 70 million phones have NFC (60% of the market base) and “virtually all commuters” pay for their subway rides with the technology. Since the technology has been proven and available in Asian markets, what has retarded its adoption in the US? The simple answer is that every large market participant finds the notion of mobile commerce irresistibly attractive and has been trying to position themselves in controlling positions. Banks, credit card companies, wireless carriers and tech vendors like Apple, Microsoft and Google have been jostling for that advantageous control point for a decade, with very little value created for the consumer thus far. In many ways this is analogous to the era before independent credit card companies like VISA and Mastercard existed, when every bank and many stores had their own, non-interoperable cards. To accept a payment from bank X’s charge card, a vendor had to have an account with bank X for transaction clearance. VISA was created by a consortium of banks as an independent entity with a common transaction clearing infrastructure, and the consumer credit market was set for explosive growth. Each of the major market players want to create the mobile equivalent of VISA as a proprietary system and force the rest of the market to adopt it, capturing a lion’s share of the massive surge of mobile payments. The competitive gamesmanship has kept the market at a virtual standstill.
However, Apple’s move in particular signals a new stage in the development of mobile commerce. Apple seldom makes a move this strategic without having a robust and powerful playbook in its back pocket. The digital music market was fragmented and stagnant for very similar reasons when iTunes and the iPod closed the loop, the embattled recording labels signed on, and Apple captured credit card information from millions of consumers and enough of the friction was removed for rapid growth to occur. Similarly, the iPhone became the model for what a smartphone experience should be not merely because of its superior technology and design but also because Apple was able to get AT&T to relinquish so much of the control over the customer that carriers had historically enjoyed. No branding on the phone, flat pricing for data, and the Apple-controlled app store were all huge breakthroughs that drove rapid market adoption.
What this means for entrepreneurs looking for opportunities is that mobile commerce will be changing radically and growing rapidly, starting next year. Incumbents like PayPal, 4Square and the like may seem to have an advantage, but experience shows that established firms rarely adopt to significant market changes very quickly. The basic functions of NFC such as paying for mass transit, groceries and food will likely be filled by the entities that already control the context for those use cases. However, any new capability like NFC tends to generate new use cases, often ones that emerge out of the behaviors of the early adopters in the marketplace. These are the niches where mobile payment startups are most likely to identify and capitalize on rather than the larger players. These are the areas where creativity, tenacity, nimbleness, and a little capital can credibly compete and win. These are the areas where entrepreneurs looking for their next startup idea should be looking.