NFC mobile payments disappoint while money transfers boom

Adoption of tap-and-pay technology on smartphones has been a disappointment and has slowed growth of the overall mobile-payments market. But bright spots still remain for companies looking to provide mobile money services to consumers around the world, according to a report from market research firm, Gartner.

In a report published Tuesday, Gartner said the value of transactions using a technology called Near Field Communications, or NFC, "has been reduced by more than 40 percent throughout the forecast period due to disappointing adoption of NFC technology in all markets in 2012 and the fact that some high-profile services, such as Google Wallet and Isis, are struggling to gain traction."

Gartner now forecasts that NFC will account for only about 2 percent of total mobile-payment transaction value in 2013 and 5 percent of the total transaction value in 2017. The firm sees some faster growth in NFC payments possible in 2016 when the penetration of NFC mobile phones and contactless readers increases.

But it seems clear now to analysts and other industry observers that the much-touted NFC technology will not revolutionize the payment industry as some had predicted a few years ago.

The problem with NFC is twofold. For one, it requires that both devices and payment terminals be equipped with technology to initiate and receive transactions that turn mobile phones into virtual digital wallets. Handset makers have been slow to include the technology in their devices. For instance, the popular Apple iPhone still does not support NFC. And wireless operators have been even slower in allowing payment services leveraging the technology on their networks. Of course, even with NFC-enabled handsets there still aren't enough payment terminals deployed yet to accept contactless payments via NFC.

The second problem NFC faces is that it is a technology in search of a problem. Using a mobile phone to make an in-store payment is no easier than using a credit card. The industry has done a poor job identifying any reason for consumers to abandon their physical wallets and instead use their smartphones to pay for things.

With this in mind, it should come as little surprise that the technology and concept of tap-and-go payments has been slow to take off. But that does not mean that the prospects for mobile payments are bleak.

A bright side for mobile payments
Though NFC has largely been a disappointment, there has been tremendous growth in other areas, specifically money transfers. According to Gartner, money transfers are expected to account for 69 percent of the total value of mobile payments worldwide in 2017.

Gartner believes that worldwide mobile-payment transaction values will reach $235.4 billion in 2013, a 44 percent increase from 2012 values of $163.1 billion. And it will generate $721 billion in value by 2017. The number of mobile-payment users worldwide is expected to reach 245.2 million in 2013, up from 200.8 million in 2012. And by 2017, Gartner believes, more than 450 million people will be mobile-payment users.

In its report, Gartner highlights money transfers as the biggest hope for the industry. It explains that the amount of these money transfers is expected to be low on a per transaction basis, but because of the high volume of usage, the segment will provide tremendous growth. Wider availability of these services and the lower costs associated with the services as compared with those of traditional banks, will push money transfer to become the leading use case for mobile payments, Gartner says.

This is likely why Google, which has struggled to get its NFC-based mobile wallet off the ground, recently announced an e-mail based mobile-payment system via its Gmail service.

Another important area of mobile payments today and in the future is merchandise purchases, which will account for about 21 percent of the total value of the market in 2013. But Gartner warns that poor shopping experiences from mobile devices have and likely will continue to hamper growth in this segment.

"Worldwide, people are not purchasing as much, because the buying experience on mobile devices has yet to be optimized," Gartner analysts said in a press release. "People are spending less via mobile devices than via online e-commerce services and at retail outlets."

As a result, purchases on mobile devices are expected to account for only about 23 percent of the total value in the mobile-payment segment forecast for 2017.

Still, there are other areas that promise growth. For instance, mobile bill payments are expected to grow 44 percent in 2013. And they'll likely account for 5 percent of the total mobile-payment market by 2017.

Regional perspective
Asia-Pacific is expected to dominate the worldwide mobile-payment market by 2016, overtaking Africa as a leader. Specifically, this region will see transaction value grow 38 percent in 2013 to reach $74 billion. South Korea, Singapore, and India are markets that are expected to drive growth.

This doesn't mean Africa's growth is slowing. In fact, Gartner says the region will still see strong growth through 2017 as companies search for the most suitable business models for local markets.

North America and Western Europe will see growth in mobile payments, but the overall value of this market is much less than in other parts of the world. According to Gartner, North America's transaction value is forecast to grow 53 percent in 2013, reaching $37 billion, up from $24 billion in 2012.

North America "has been impacted by low adoption of NFC payment services," Gartner said in a press release. "And many merchants are launching mobile apps in a copycat fashion without a clear winning strategy."

Meanwhile, the transaction value in Western Europe is expected to reach $29 billion in 2013, up from $19 billion in 2012. The market is expected to experience steady growth through 2017. That said, Gartner acknowledges mobile payments have gotten off to a slow start in Europe, as several services have struggled to get off the ground. And the market research firm believes these factors have postponed growth in mobile payments in Europe for at least a year.