This blog describes why only 3% of all mobile subscribers are able to transact with an NFC Wallet. This is the “chicken-side” of the chicken-egg-and-rooster dilemma: NFC Wallets are dead which I inroduced in my last blog. There I identified three funnels necesary for NFC wallet payments ever to happen:
- 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) such that they are both enabled at the POS and accessible in the consumer’s wallet?
This approach allows to calculate the potential market share for NFC wallet payments in the given transaction space, i.e. card payment reaching a purchase volume of more than $3,500bn in the U.S. alone. It shows that sufficient penetration is required in all 3 funnels which seems unlikely in the marketplace today.
Today, I would like to detail my assumptions on the Consumer-Chicken funnel and apply simple pipeline economics to show that only 3% of all mobile subscribers might be using an NFC wallet. In the next few weeks, I will also provide more depth on the other two funnels and give you an opportunity to test your own assumptions by using an interactive calculator.
To enable a consumer to pay via mobile device with an NFC-enabled wallet, 5 prerequisites must be in place, all of which make up the the consumer funnel. The first 3 funnel stages are technical in nature. The consumer must have: 1) a smartphone; 2) a smartphone that is NFC enabled; and 3) a relation with a wallet provider (such as Google or a Mobile Operator) which has technical access to the secure element connected to the phone. The additional two funnel stages are marketing-related: 4) the consumer must have downloaded and activated the wallet and 5) become a regular, active user . Let’s look at each funnel stage in detail in order to tease out assumptions pertaining to each stage of the consumer funnel:
Stage 1: Smartphone Penetration
The consumer has to have a smartphone with a dataplan that allows the download of a wallet app and its online use. Mobile phone penetration exceeds 100% in most markets. Smartphones continue to push feature phones out of the market.
For stage 1 of the consumer funnel, we assume that the number of mobile smartphone users in advanced markets will reach 80 percent very soon.
Stage 2: NFC enabled smartphones
The user’s smartphone has to have in-built NFC capability. If you have any kind of iPhone, don’t bother – iPhones do not support NFC yet and it remains questionable if and when they will in the future (we are also not going into detail regarding the fact that iPhone users are the much better target group for mPayments). Android-based smartphones dominate the NFC handset market with 90% of all NFC handsets shipments. Frost & Sullivan predicts that 53% of smart phones will be NFC-enabled by 2015. History has taught us that we cannot trust the analysts on NFC predictions – but for the sake of our exercise let’s do it anyway and assume a 50% NFC penetration of all smart phones. For stage 2 of the of the consumer funnel, this results in 40% NFC penetration of the mobile subscriber sector (50% of the subscribers left in stage 1%).
Stage 3: Access to the Secure Element (SE)
The consumer’s wallet provider must have access to the secure element – a secure chip – storing the consumer’s payment credentials (e.g. his virtual payment cards). This is not immediately obvious in that SEs come integrated in different flavours: as an UICC (SE integrated into a SIM card) controlled by a mobile operator; embedded into the device controlled by the device manufacturer; or as plug-in cards for an SD card slot controlled by third parties. If you want to get smarter than this, you can find more detail on this blog how to access secure elements. For now let’s just take another positive assumption: We assume that for 50% of all NFC-enable mobile phones, there exists a customer relation between a Consumer and an “SE Access Provider” (Carrier, Google, Bank), which takes the number of users at the third stage of the consumer funnel down to 20% (50% of subscribers left in stage 2)
Stage 4: Wallet Activation
Just having an NFC-enabled smartphone as well as a potential relation with a wallet provider with SE access does not in and of itself create any consumer awareness on using the phone for NFC payments. Marketing has to come in. Experience and many surveys show that about one third of mobile subscribers are interested in using their mobile for financial services and potentially sign up for these sevices. For example, nearly one-third of U.S. consumers now do mobile banking at least once a month..
Activating a wallet is not necessarily an easy process as customer risk requirements must be satisfied if the wallet is to be used for payments. If 30% of subscribers become aware of and successfully manage the activation, that is already a high number. This takes the number of activated wallets down to 6% of all subscribers in stage 4 of the consumer funnel (=30% of consumers left in stage 3).
Stage 5: Wallet Share
Activation does not mean regular use. Consumers must be exposed to payment situation and incentivized to use a new payment tool regularly. How many banking cards do you have and how many of them do you actually use? Do you see enough benefits in regularly using the virtual cards in your mobile wallet over your physical alternatives? This requires a form of successful below-the-line marketing campaigns, constant communication and continous improvement to create a relevant wallet share. Traditional players like carriers and banks don’t have a good track record in this regard.
Again, let’s be optimistic and assume that 50% of all activated subscribers become active. That yields a penetration of 3% of all mobile phone users who are able to pay with their NFC wallet (50% of subscribers left in stage 4).
Despite the positive assumptions taken above, 3% of all consumers is very low and anything else but healthy! Happy to hear your opinions. In the next weeks, I will publish blogs on the other two funnels and give you an opportunity to test your own assumptions by introducing an interactive calculator.