BROOMFIELD, Colo. — As RFID-based contactless payment cards continue to gain acceptance in retail stores, the marketplace is gearing up to embrace cell phones as the next contactless payment vehicle over the next few years, according to speakers at the NRFtech 2008: IT Leadership Summit, held here this month.
Shoppers will be able to use cell phones configured for Near Field Communication (NFC) to make a payment by simply holding the phone near a detection device. NFC is a short-range wireless connectivity standard that uses magnetic field induction to enable communication between devices when they're touched together or brought within a few inches of each other.
Jim Scott, chief technology officer for Kroger, Cincinnati, believes this new form of payment is a natural fit for grocers due to its time-saving benefits. “Nobody stands in a grocery line because it's a pleasure,” Scott said. “We are looking to shave more than seconds off that line.”
Scott was among several panelists at a session titled “Mobility and Near-field Communication — The New Era of Ubiquitous Retailing,” at NRFtech, held Aug. 10 to 12 by the Washington-based National Retail Federation.
Experts predict that it's not retailers who will lead the way to the future. “Consumers will adopt this technology, and retailers will have to follow,” said Brian Kilcourse, managing director for Retail Systems Research, Miami, and moderator of the panel.
NFC technology also reduces the amount of paper and plastic the average person has to carry in their wallet. And because NFC uses a dynamic algorithm to generate a unique ID for each transaction in a non-sequential code, it is hard to steal someone else's information.
Moreover, the average person is hyper-aware if their phone goes missing. “[Consumers] always have their phone,” said Barry McCarthy, president of Mobile Commerce Group, First Data, Denver. “It takes an average of 60 minutes to report a stolen phone compared to eight hours to report a stolen credit card.”
Making payments with an NFC-enabled cell phone is common in Japan, but still in its infancy in the United States. A contactless payment system was recently piloted by the Bay Area Rapid Transit (BART) train system in the San Francisco region; commuters were able to exchange their cell phones for NFC-equipped Sprint “smartphones,” which they can just tap on a reader to pay the fare. Thomas Parker, BART's group manager, said at NRFtech that the trial has been enormously successful in increasing accountability and reducing revenue loss due to the handling of cash.“Every time we move a dollar, it costs us 6 cents,” he said. Additionally, paper tickets cost 3 cents each, and with 750,000 of these printed each year, it adds up. With the smartphones, Parker added, “we can sell a dollar and get a dollar.”
McCarthy agreed. “Managing cash is the most expensive tender type. Cash is sort of the enemy,” he said. “NFC technology is well-suited to converting cash payers to electronic payers.”
Of course, electronic payments can also be costly to process, Scott pointed out, and thus far the expense of transitioning systems and installing the necessary new equipment for NFC payments is prohibitive. “[Contactless systems] don't eliminate the costs,” he said. “It's not free.”
But Scott predicted that most new terminals in the next few years will contain both the traditional swipe and the NFC capability. “If you haven't already, you should plan it into your next refresh [of store technology],” he said. “It's part of this new mobile environment. Everything is in a person's phone. That's why we [as retailers] are focusing on an increasingly broad mobile space.”
Beyond their payment capability, what makes NFC systems attractive to big retailers like Kroger is the possibility of individualized marketing based on a customer's location and purchasing preferences.
BART's smartphone plan included a partnership with the Jack in the Box restaurant chain whereby commuters could hold their mobile phone up to certain Jack-in-the-Box “smart advertisements” on BART station walls and download directions to the nearest Jack in the Box restaurant as well as added value toward their food purchases.
Kroger is already partnering with Cellfire, San Jose, Calif., a mobile coupon service, and several CPG firms to make grocery coupons available via consumers' mobile phones. The service is available to Kroger consumers in Georgia, South Carolina, eastern Tennessee and Alabama, and includes savings on products from Clorox, ConAgra, Del Monte, General Mills, Kimberly-Clark and Unilever. To use the service, consumers register with Cellfire and link their Cellfire account to their Kroger Plus card.