This post explains why the market share of NFC wallet transactions will be less than one tenth of 1% of the entire transaction space at the POS. In a series of recent blogs post, 4-Ventures introduced “The chicken-egg-and-rooster dilemma: NFC Wallets are dead.”
The chicken-or-the-egg-dilemma (“which came first, the chicken or the egg?”) has haunted me over the course of my entire career. In multi-sided markets, specifically in payments, the term “chicken-or-egg” is commonly used to describe a situation in which it is very hard to reach a certain desired outcome (e.g. that consumers employ a new payment method) because a necessary precondition is not met (too few merchants are accepting the new payment method). For NFC wallet payment, however, this dilemma isn’t dilemma enough. A 3rd funnel gets into the picture which we have called the rooser. The chicken-and-egg dilemma becomes a chicken-egg-and-rooster dilemma embracing
- 1) The Consumer “Chicken” funnel — how many consumers are able to transact with an NFC wallet?
- 2) The Merchant “Egg” funnel – how many merchants are NFC enabled at the POS?
- 3) The Service Provider “Rooster” funnel – how many service providers (e.g. banks) will have enabled their services (e.g. payment cards) in such a way that they are both enabled at the POS and accessible in the consumer’s wallet?
Going into detail for each funnel, we published a specific blog on each of the 3 facets of the dilemma providing quantitative assumptions for the penetration rates of each funnel:
- only 3% of all mobile subscribers are able to transact with an NFC Wallet
- only 12% of all merchant POS can accept contactless payments via an NFC wallet.
- only 8% of all potential NFC Service Providers will enable NFC
From a Christian standpoint, we were hopeful that the rooster could solve the dilemma. (Didn’t God create man first ?). Hovever, belief cannot overturn over the math here.
NFC wallets are roosters that have not hatched and cannot be counted on to do so.
Based on our assumptions, the market share of NFC Wallet Transaction is going to be less than one-tenth of 1% – 0.03%, to be exact (we derived this simply by multiplying the three funnel penetration rates: 3% x 12% x 8%).
For the purpose of reviewing and adapting our assumptions, we are now introducing the NFC-Chicken-Egg-Rooster Calculator. On one interactive page, you can review the assumptions for all three funnels and edit them to calculate the NFC Wallet market share based on your own assumptions. Good luck! We welcome your comments.
It is naive to believe that the current approach to NFC wallets can succeed. Nevertheless, the major 100 global mobile network operators will by now have spent between $10m and $100m each on NFC projects – a total investment exceeding $3bn. ISIS — the US initiave backed by Verizon, AT&T and T-Mobile — is alone said to have exceeded an investment of $500m. Google’s investment is probably of about the same magnitude — but at least Google already started to open its wallet for other technologies.
NFC will become a forgotten experiment in mobile payments if the complexity does not roll back to the standard chicken-and-egg dilemma. Enabling the secure element in the cloud and aggregating services on the phone and in the cloud around one key are obvious concepts to reduce this complexity.
Will this happen with the card schemes? No! The card schemes invented NFC more than 10 years ago for use in an offline world. They translated the concept of a pament card physically present at the POS one-to-one into the concept of an NFC wallet emulating a card “physically” present at the POS. That was for good reasons as no one was online with a smartphone at that time. The world has changed and is online.
However, allowing a card to be stored in the cloud today would potentially question the foundation of the schemes’ core card business. Aggregating services around one key also does not work in their security paradigm. In addition, their model for contactless NFC payment cards already works in a standard chicken-and-egg world. Put yourself in the schemes’ big shoes: Facing these existential threats, who would care about the benefits of mobility?
Now what, wallet operators?
Don’t be hoodwinked any longer. Change your model – even without the schemes – and go back to a manageable chicken-and-egg scenario. Let the rooster rest in peace: cock-a-doodle-doo, quiquiriquí, cocorico, kikeriki!