Our investigations in SITA Lab into NFC have been focused mainly on boarding passes, but it has given us a glimpse into the world of payment systems and credit card processing, which to me has always been a bit opaque. It is interesting to find out who pays who along the way of the purchase of an airline ticket.
Richard Clarke of T2RL.com estimated that the airlines paid the major credit card companies $3 billion in credit card processing fees in 2011. The total profit of the whole industry was estimated to be $7.9 billion by IATA.
In order to cover credit card processing costs, some airlines apply a surcharge that can vary depending on which card you use for your purchase. Some airlines cloak this in an "administration fee" that is added when you pay, unless you use their credit card. Many governments have been, or are looking into, passing regulations to prevent these extra surcharges showing up as hidden fees, to ensure transparency. In the end, the issue is, $3 billion is a lot of money to pay for credit card processing, and also a big money pie for technology innovators to try to reach out and take a slice out of with new approaches to payment.
Paypal is probably the largest and most well-known alternative payment processor for Internet purchases as well as offline transactions. It too charges 2.4% for processing, similar to the credit card companies. This is a similar model as credit card companies, but without the card. Square lets anyone take a credit card to transfer money to their account using a free dongle you plug into your smartphone or iPad. So if I owed you $20, you could use your Square account to take it right off my credit card (you don't have to be a company or be a merchant to get an account), enabling person-to-person payments, but they too charge 2.75%, though that covers the credit card fee as well. Dwolla links your mobile phone to your bank account to allow you to move cash to other Dwolla users using your phone for only 25 cents regardless of the amount, and it's free for transactions under $10. The major US banks are also coming out with their own person-to-person instant cash transfer offering as well using your mobile phone.
With all of these payment/transfer options getting developed using your smartphone, the use of NFC via a secure wallet to facilitate these transactions is the technology we started looking at in the Lab. We have found there are other ways to do it as well, from high-frequency ultrasound (Paycloud) to the latest Bluetooth technology 4.0 using the Bluetooth Low Energy (BLE) feature. A recent article by the analyst firm ResearchFarm predicts Apple may opt for going with BLE instead of NFC in order to roll out its own new payment system for mobile phones. Apple took on the music industry with the iPod and iTunes and the telecom industry with the iPhone, so why not the financial industry with retail payments and transfers? (Apple's market cap is nearly triple that of Visa, MasterCard and American Express, combined!).
We still think NFC has great potential, but with all the money on the table, it is no wonder that there is a heated struggle between all the existing players, as well as the newer and nimbler startups. This struggle makes it difficult to get everyone to agree to a universal approach that is inter-operable as well as easy and convenient for the consumer, whether it is for retail transactions or person-to-person transfers. Certainly, the process to do so is taking some time to work out, but I expect to see A LOT of activity in this field in the next 18 months.