NFC and Digital Wallets – What Does This Mean for UK Startups?

The race to create a unified popular product is on, the problem is, no one knows which elements consumers want.

There’s been an explosion of news on the subject of Digital Wallets this month, from analysis of the big players locked in a ‘war’ to position themselves as the future dominant provider, to whether users will even adopt elements, such as Near Field Communication (NFC), to whether it’s a lot of effort for something no one wants.

The latter argument goes that people in Japan have been able to pay with a ‘mobile wallet’ since 2004 and adoption is slow. This argument is most strongly laid out in the article ‘Why consumers can’t be bothered to use their phones to pay for things’. The speculation is valid, but it’s a little short sighted – after all, we had phones before smartphones right? They didn’t solve a problem, they opened up new possibilities.

What the article and much debate misses is firstly convenience – who wants to carry around vouchers in their pocket or search for them online? NFC allows them to be pushed or be discoverable is just one potential convenience. We carry more photos of loved ones in our phones than the traditional space – the wallet, and remember Filofaxes? Exactly. The second point missing is trendsetting – having the ability to do something and it being cool are two very different things. Apple and Google are leading the way in the search for a unified solution, both of which we know have trend-set, whether we needed a product or not – we lapped them up.

One thing is clear, digital wallets and vouchers are already here. One less known thing is that NFC is also here in the mindset of UK consumers – take Oyster for example and improving payment exchange on the move on the London transport system. The UK is an early adopter for this technology and the benefits are already proven. The problem that all companies are facing, is finding a way to ensure their product gains the exposure to get a majority adoption. The problem comes from the way in which the technology has emerged – vouchers, QR codes, Electronic Payment Systems (EPS) and mobile technology/smartphones all have evolved rather than launched in one package.

The key questions facing companies are ‘which elements are consumers going to find useful, and which work well with those that already are?’. The situation is concisely summed up by Paul Buchanan, Head of Mobile for PayPal Australia (at CeBIT’s Future of Payments Conference this week):

A digital wallet leader may emerge later, but “in the short term, there will be a whole bunch of apps… there isn’t one right now that does it all.”

The same is true with NFC integration. So the question is, what should UK startups do about joining the race by adopting these methods for their businesses? If we look at what the UK financial and telecom networks are thinking, they are more than interested:


The seal of approval for NFC trials came last month with the European Commission allowing Telefónica, Vodafone and Everything Everywhere to start a joint venture:

“The Commission is keen on promoting innovation in this area and ensuring that the markets remain open so that a number of competing solutions can emerge without undue obstacles, to the benefit of consumers,” said Competition Commissioner Joaquín Almunia. (ComputerWorld)

With this blessing and the obvious interest from providers, all that is left for the UK is banks and financial giants to also want it. This too is happening, Mastercard signed with Orange/T-Mobile in August covering 27m UK users, BarclayCard and Orange have partnered up and Natwest announced a trial in July this year.

Whilst this shows more than just an interest in NFC, how will we use it? We need apps or a purpose designed phone to get the most from it.

Google vs Apple

Apple Passbook, included in the latest update to iOS and on iPhone 5 is currently not a full digital wallet. It does however currently allow users to avail of offers through vouchers and loyalty cards for major retailed including Starbucks and Odeon in the UK (the official site still shows US examples). This latest launch is a clear intent from Apple to move in to the space of phone commerce,

EasyPay (part of the Apple Store app) was introduced to the UK (and Japan) in June this year for purchasing Apple products in Apple stores. Prior to this it received positive reviews for the half-year it had been used in the US. Currently it’s limited to buying Apple products of course, and is iPhone only. With the rush to provide a platform to rival Google Wallet, this may be a moment where Apple is testing, before creating a solution to plug in to Passbook.

Google Wallet in the UK

Google Wallet is the first to create a large-reach app capable of making waves, it allows users to store debit and credit cards, loyalty and gift cards and vouchers and utilises NFC. It’s not available yet in the UK despite speculation that it would be in time for London 2012. So for UK startups, this is the only limit and it will not be long before it’s launched here.

When it does arrive, it will have a tremendous reach, not only does it benefit from Google’s vast Android network, it also works on iOS, Windows Phone and RIM.

Why are Apple and Google so important? For two reasons – firstly they have the reach to deliver a solution as well as the development muscle. Secondly, for the same reason ‘Why consumers can’t be bothered to use their phones to pay for things’ is likely to be proven wrong – the reason why there are so many articles debating digital wallets and NFC is because Apple and Google are moving on it.

In conclusion, the best approach is to hedge your bets. The clear trend is that if a unified popular solution is coming, it will be from Google with a partner or Apple in the short term. The un-spoken possibility is a challenger that emerges with a solution that is phoneless yet more advanced than a card; or of course another leap in technology that shifts the paradigm further.

Whilst the technology evolves, the only way to measure success is through user testing – what sounds good to a product manager or entrepreneur is often technically brilliant, but is in fact a wheel reinvention or LaserDisc. UK startups have a rich place to try it though, the UK is financially savvy with a high-eCommerce adoption rate and as previously discussed, this is translating in to large tech companies investing heavily to be here, meaning the speed to market in the UK for these technologies will shrink year on year. It’s wise to keep an eye on Google and Apple, Google because it’s app works across phones and Apple because when they reach for a technology, they trend-set and execute well.

The consensus is that it’s early days, but it’s a technology that cannot be ignored, especially for UK startups in the retail space. It should be the hottest in startup news too, because it affects us all, how consumers pay and how they will pay. The UK is prime to be one of the first to be affected by any changes in consumer trends where these technologies are concerned with our status as a financial and digital hub with a high per capital smartphone adoption. As with our previous article: ‘Turn On, LinkIn and BrandOut‘, on being there first and being a spread as you can in the online business networking world, it will pay to do the same with how you allow your customers to pay. Moreover, the potential for new startups to emerge around the potential future of payments is huge, if the Facebook economy has served the UK startup scene well, the eCommerce economy is a no-brainer.

Whatever the outcome, be sure to test, play-with and integrate this technology into your business shop front or risk being beaten by the (near) field.