Dec 6, 2009

The missing link in the NFC story

There is a growing realization that retail applications will drive NFC adoption over the next few years, in a bigger way than credit cards and transit. Leave your loyalty card at home and tap your phone instead. Top-up your coffee account now, without a card. Get a free desert with your next value meal, just tap this smart poster.

Assuming that NFC mobile phones finally become available, and that business models become clear (I know, I know, just assume) the next barrier is the retail infrastructure.

Anybody that has dealt with chip, EMV or contactless deployments knows how difficult it is to upgrade the retailer infrastructure. And that’s just for the payment terminal, a relatively small part of the cash counter complexity. Compared to the rest of the retailer’s systems, the payment process is highly standardized, thanks to security and compliance requirements defined by the major payment schemes.

In contrast, providers of retail applications operate in a very messy world with virtually no standards. There are hundreds if not thousands of companies that develop retail applications for CRM, loyalty, promotion management, couponing, etc. Every single one of these companies specializes in a small number of vertical markets, maybe one or two. Experts in supermarket ERP systems have almost never been able to become experts in fashion ERP, much less restaurant marketing. The promotion management methods are always different from one supplier to the next, couponing business models are entirely different for supermarkets and for fast food outlets and fashion retailers, loyalty techniques that work for department stores don’t work for petrol stations, supermarkets or convenience stores. Even if basic concepts are sometimes the same, the bits and bytes are always different.

If upgrading payment terminals is difficult, where the payment function fits in a small device that pretty much always works in approximately the same way, provided by a small group of companies that are very well known in our community, imagine the complexity of dealing with the rest of the retailer’s infrastructure, provided by a much larger group of companies, most unheard of in our industry.

If we want NFC to be deployed on a massive scale, we need to have the same level of connection with this vendor community as we do with banks, telcos, payment processors, terminal vendors, card suppliers, etc.

We need to work with the companies that supply the systems and services that make retailer POS systems work, the systems that actually process the promotions and coupons and discounts that you get on your cash register receipts, the CRM systems that drive retailer marketing programs.

Who are these companies? What are their needs and business objectives? What are their pains? In what way is NFC valuable to them, valuable enough for them to really want to integrate it into their systems?

A small number of loyalty companies are beginning to develop systems using NFC. Zapa in Ireland, Tetherball in the US, Adelya in France and several others elsewhere are loyalty marketing companies that have added NFC to their products. They compete with hundreds of similar loyalty providers who have not yet adopted NFC.

Zapa raised €2.5 million to develop and roll-out “a number of unique applications from customer loyalty schemes to NFC payments”. Most of Zapa’s competitors can’t raise such funds. A simpler approach is needed for a large number of suppliers to adopt NFC at low cost, so that retailers can continue having the rich choice of solutions that they are used to.

TSM (Trusted Service Managers) provide part of the solution. They were designed to manage bankcard data securely on NFC mobile phones, and tend to look at retail marketing programs as something essentially identical. That’s a mistake. For one thing the costs involved are very different. Retailers may pay US$0.50 for a plastic card, much less than the costs of a new generation chip equipped secure bank payment card. In addition, the pains and objectives between the two types of card issuers are very different.

TSM vendors assume that the service provider, i.e. the bank, the transit operator or the retailer, already has a relationship with the customer. This is true for the bank and the transit operator, as well as for a few very large retailers. But it is not necessarily true for the vast majority of retailers.

For most retailers, there is much pain in getting customers to join a program, fill out a form, put the card in their wallet, and keep the card there for every subsequent visit to the retailer. More and more people refuse to fill out yet another form for yet another card that will invariably be left at home. If the retailer’s card is seen as a bankcard, then the TSM will just add complexity to the enrolment process, since it creates the additional step of fiddling with one’s phone to get the program securely loaded through the TSM.

The current TSM approach also adds another complexity that will become unbearable in time. With a single card loaded to your mobile wallet, it might be possible to go through a few keystrokes to get to the card when you need to wave your phone at the point of sale. But as soon as you have more cards, the process is going to be horrible. Imagine at Starbucks, flipping through all of your programs, selecting Starbucks, then realizing that you selected the Kuala Lumpur Starbucks application when you are in Singapore. The POS terminal flashes an error message and you have to flip through pages on your mobile phone again.

NFC will die a quick death if that becomes the user experience, yet it is exactly the user experience that we are moving towards.

Take a look at this video that I find very scary. It throws in coupons as well. You physically select each coupon that you present to the point of sale terminal, as well as choosing the payment method.

My new venture, Taggo, is a card aggregator and storefront platform designed for companies that develop CRM, loyalty, membership and point of sale systems. Taggo has not yet been launched, and already four systems providers have signed up as platform users, covering major retailers in South East Asia, India and Australia and New Zealand. Check out ETP International, Integratech, Memberson and Transactor Technologies. Integration takes around two weeks with each company. We expect to sign a total of thirty systems providers by the end of 2010.

Today Taggo is an RF-ID sticker, but we are working with TSM vendors to load Taggo as an NFC application in the phone. This will automatically provide access to all of the retail solution suppliers that integrate Taggo into their systems.

Working with companies that provide retail CRM, promotion management, couponing and point of sale solutions actually takes me back to my roots as a young programmer in Denver, Colorado, in the mid-1980’s. I was working for a retail software solutions provider, developing a POS program generator that had a configurator tool designed to replicate the capabilities of popular cash registers. I learned all about promotions management, payment types, coupon processing, inventory management, and ergonomics at the point of sale.

The company was JPMA Inc. If you haven’t heard of them, you can be sure that other players in the retail solutions space have. And that’s exactly my point.

No comments: