During a recent spate of travelling on international and local flights, I observed that over half of my co-passengers were using smartphones. Not surprising, since analysts expect a growth of 30 per cent or more CAGR (Compound Annual Growth Rate) for smartphones (regular feature phones are expected to show only single digit growth rates). Of course, smartphone adoption is a global phenomenon - 43 per cent of mobile phone users in the US own a smartphone and 55 per cent of mobile phone buyers bought a smartphone in the previous three months, according to a survey by Nielson. The staggering growth can also be attributed to the platform and ecosystem built around these devices to fully leverage their potential as a multi-utility device rather than mere consumption devices. Smartphones aren't going to be restricted to a communication and social platform; soon, they're going to drive commercial transactions for digital and physical goods.

Market potential

According to a Yankee Group report, mobile payment is expected to increase to $1 trillion by 2015 from the current $241 billion – a CAGR of a whopping 56 per cent. That comes as no surprise considering the amount of buzz created by different technologies trying to garner market share in the mobile payment business - from simple SMS-based payments to mobile web payments to the emerging NFC (Near Field Communication). Globally, NFC-based mobile payment is expected to reach $50 billion by 2014. Credit card giants like Visa, America Express and MasterCard have entered this area, either with their own platforms or through a consortium with technology and telecom majors.

Outside NFC, one of the most interesting next-gen solutions is by Square, founded by Twitter's co-founder Jack Dorsey. They have created a card reader - a small device that can be attached to the headphone jack of an iPhone and converts your card details to audio signals for payment processing. Square generated $1 million in daily processing within ten months of launch and surpassed $10 million in daily transactions in October 2011. With different players putting their weight behind different technologies, there's no clear winner right now, although NFC clearly has the edge over the rest.

The question that remains is, how big will the NFC market be? Research conducted by TechNavio predicts that NFC will grow at 68 per cent CAGR between 2010-14. This also means that NFC will easily surpass 5 per cent of the global mobile payments market by 2015; within just 4 years of its launch. No wonder then that many biggies are keeping a close eye on this while some like Google are already integrating this technology.

There is a very high chance that NFC will actually outgrow these expectations. However, that will require some concentrated effort from banks, device makers , technology and platform owners and transaction service providers to establish it as a secure industry standard. They will also have to develop various ecosystem and platform solutions tailored to specific usage scenarios by the consumer.

The ideal solution?

NFC is touted as the closest solution to meet the criteria for an ideal mobile payment system. It enables communication at ultra-low distances – just 4 cm. The most popular way of enabling communication between NFC enabled devices is tapping them together. Google, HTC, Samsung, MasterCard and many other global industry leaders are investing heavily in NFC. It has the potential to replace the credit card, loyalty cards for your favourite shopping destinations that clutter your wallet, the subway, metros, bus cards and even the paper coupons you carry in your wallet to get that additional discount. NFC, when backed by well-invested infrastructure is expected to be a force to reckon with not just in the online purchase market space, but also the physical goods payment market which is currently dominated by credit cards.

So will consumers adopt e-wallets? The answer is a yes, because it's fundamentally much more convenient, interconnected and secure. It'll need an investment push at the beginning. A 2014 grocery store checkout could mean just tapping your phone to the NFC reader - it can't get simpler than this. There are a few challenges though. Retailers and transportation companies have to invest in NFC readers and that entails capital expenditure. Another concern - and this is a big one - is data security and theft. Unless this aspect is addressed well, NFC will not be any better than physical credit cards or cash, for now.

NFC adoption in India

Global adoption of NFC is led by Japan, which uses NFC as the preferred mode for ticketing transactions for local transport. Europe is expected to see NFC implementation shortly in public transit systems. Over the next 12 -24 months more than 20 countries are expected to have NFC in one form or the other. As always, India is a unique market for NFC implementation and adoption. Standard urban market testing by Citibank in Bangalore conforms to global practices and is targeting the larger semi-urban and rural areas. NXP and Glodyne Technoserve are implementing NFC-based banking platforms in Bihar, while SBI has picked up a 20 per cent stake, for $18 million, in the startup ‘A Little World' that develops NFC-based low-cost bank branch solutions portal, DealCurry. With the telecom revolution targeting a majority of Indians, imagine the potential NFC has to disruptively transform micro-payments in India.

(The author is Executive Vice President and Global Head of Sales and Practice, Engineering and R&D Services, HCL Technologies)

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