VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

NFC at NRF

NFC was a pervasive theme at the 2012 NRF show held this week in New York City. Technology vendors of all types were talking about their plans for integrating NFC into their product portfolios and, in many cases, displaying their latest NFC-enabled solutions. Whereas NFC is a nascent, still-developing technology, its presence remains somewhat confined to a few key product categories, but as consumer adoption of NFC smartphones scales in 2012 and beyond, we expect to see an increasingly broad range of customer engagement/retail automation solutions incorporate NFC into their design. What follows is an overview of some of the notable NFC activity at this year’s NRF.

• ViVOtech introduced its ViVOtouch NFC solution, which is mobile marketing software platform that allows merchants to deliver targeted/personalized content, offers and loyalty programs to customers via their NFC-enabled mobile devices. This solution also allows for interactive shopping and NFC-enabled information retrieval on the store floor, further enhancing the shopping experience. Contactless payment is certainly a hot topic, but as a standalone application its ROI potential probably is not strong enough for most enterprises to justify investment. We believe solutions such as this will drive the adoption of contactless payment NFC solutions in retail.

• NFC payment terminal leader VeriFone introduced its PAYware Mobile Enterprise for Tablets, a secure payment acceptance solution that is compatible with the company’s GlobalBay Mobile POS solution. The solution is designed to run on Apple’s iPad 2, and provides the same functionality offered by the original iPod-touch based PAYware solution. PAYware for Tablets has the same fully secure encryption as previous versions of the solution, and enables the acceptance of traditional payment cards, PIN/EMV smartcards and NFC contactless payments. The solution adds further utility for merchants via a built-in 2D barcode scanner for item scanning, coupon acceptance and inventory management.

• INSIDE Secure demonstrated its NFC-based solutions for consumer and product authentication in retail. The solution enables shoppers to verify the authenticity of high-end/luxury goods and allows merchants to confirm the identity of customers. Whereas mobile devices, particularly smartphones, are becoming an increasingly prevalent element of retail marketing strategies and consumer shopping behavior, we expect that solutions leveraging NFC for brand and user authentication will become increasingly popular among retailers of luxury and other high-end goods.

Mobility and customer engagement have been pervasive themes with retail for some time now. NFC offers retailers a way to achieve both of these strategic objectives in a manner that is reliable, fast and easily-scalable. As consumer adoption of NFC gains momentum, we expect to see an increasingly diverse range of retail technology solutions support this technology.

NFC Payments … Good Things Will Come to Those Who Wait

Near Field Communication (NFC) is the focus of much media attention these days, but most of this coverage is concerned more with future opportunities rather than what is happening in the present.  Evangelism and media hype have resulted in consumers who are aware of the technology perceiving it almost exclusively as a contactless payment solution that enables mobile phones to function as a credit/debit card. And with recent announcements, media coverage, and overall activity levels (pertaining to NFC payments) it’s hard not to think of it as such.  For example:

• Leading payment terminal suppliers shipped record numbers of NFC-enabled terminals during 2011.
• Credit/debit card issuers such as MasterCard. VISA and AMEX are committed to the solution and are now issuing NFC-enabled cards. 
• MNOs (Mobile Network Operators) such as Verizon, AT&T and T-Mobile are investing in and collaborating on contactless payment solutions (i.e.: ISIS)
• 2H 2011 yielded more NFC-enabled device announcements from leading smartphone and tablet suppliers than we have ever seen previously, including Motorola, Samsung, Nokia, RIM and LG (though notably, not Apple).

Although contactless payment is expected to be a significant opportunity for NFC, we believe it will likely be several years before this application is broadly embraced by merchants worldwide, and that several other applications will take hold first.  But If NFC is expected to play a major role in mobile payments and has significant forward momentum, why are contactless payments years away from broad adoption?  Based on research we just completed, there are five key reasons:

1. NFC payment solutions are expensive and offer no clear ROI at this time – they are difficult to justify.
2. Many leading retailers went through expensive post-recession refresh cycles of their core systems, and are not allocating significant budgets for new in-store technology (particularly given persistent economic uncertainty).
3. The percent of consumers with NFC enabled devices remains limited.
4. Mobile payment application development is limited, suppliers’ mobile-payment product portfolios are slim, there is a lack of a universal platform/high levels  of proprietary platforms and significant customization and integration requirements
5. The enablement of mobile payments requires extensive cooperation across a complex payment processing landscape, and many of the required relationships are still at their formative stages.

Our comprehensive study of the NFC market makes us more confident than ever that NFC will have a role in the future mobile payment landscape, but we are equally confident that it will take time for its role to be fully realized. Although we absolutely expect contactless payment to be a blockbuster application, NFC’s immediate opportunity lies outside the realm of contactless payment solutions.  To learn more about NFC and our recommendations for suppliers, download the executive brief.

 

Verifone on Point with Recent Acquisition

Payment terminal solution supplier Verifone continues to pursue accretive growth. On January 3rd, the company completed its acquisition of Point, a leading provider of payment solutions in northern Europe. Point, headquartered in Stockholm, will continue operations under the same name, but as a wholly owned subsidiary of Verifone. Point represents the latest addition to the list of Verifone’s acquisitions over the recent past, which also includes WAY Systems, Gemalto’s payment terminal operations, Hypercom’s non-US operations and Global Bay.

The acquisition of Point has significant strategic importance for Verifone. The transaction rapidly increases Verifone’s presence in EMEA, particularly in Northern Europe, where the company has historically lagged behind the regional share leader, Ingenico. Combined with Verifone’s previous acquisition of Hypercom’s EMEA operations and Gemalto’s payment terminal business, Point further solidifies the company’s status as a serious threat to Ingenico’s market-leading position.

Furthermore, the addition of Point further extends Verifone’s portfolio of alternative payment solutions, including those for supporting NFC contactless payments and mobile commerce. EMEA is a particularly important regional market in the context of NFC payments, as historically stronger availability of NFC-enabled devices and a more robust installed base of contactless infrastructure could drive faster adoption of more advanced NFC solutions in this region.

Personal Shopping Systems-There's an app for that, too...

Stop & Shop is scaling its Scan-It Mobile initiative, an Android/iPhone-based version of its original handheld Personal Shopping System (PSS). At the end of October, the supermarket extended the app to 42 more stores throughout Massachusetts, Rhode Island and Connecticut. Leveraging a smartphone’s embedded camera as a scanner, the Scan-It app allows customers to scan & bag their groceries as they shop, thereby expediting the checkout process. As a regular Stop & Shop customer and iPhone user (not to mention analyst covering PSS), I was interested to test the Scan-It app first hand. I got that opportunity this past weekend while doing my weekly grocery shopping.

Overall, the performance of the Scan-It app on my “old” iPhone 3GS is impressive. In most cases, the camera scanned with approximately 90-95% of the efficiency as compared to the dedicated Scan-It solution, which I have been using on a weekly basis since it was introduced several years ago.

The app is not flawless, however. On several occasions I noticed the camera struggling to focus, delaying the scan. That said, I also experienced scans that occurred with the same speed as the purpose-built Scan-It solution. The only other shortcomings I noticed were the ergonomics of using the iPhone as a scanner and the hassle (relative to the dedicated Scan-It solution) of repeatedly scanning multiple purchases of the same item. I suspect this latter issue could be addressed through the addition of some kind of quantity-input feature in an updated version.

Considering the solid performance of the Scan-It Mobile solution, PSS apps such as Scan-It could represent a threat to the business of dedicated, purpose-built PSS hardware suppliers. By offering PSS via a smartphone app, retailers essentially eliminate the hardware investment required to deploy PSS, thereby enabling PSS to be deployed across a store chain with relatively little added expense. While ensuring data security—both for the customer and the enterprise—remains a critical issue, we expect more retailers seeking PSS will evaluate smartphone apps in addition to dedicated solutions.

VeriFone's Acquisition of Global Bay Technologies

On November 1^st VeriFone announced its acquisition of Global Bay Technologies, a mobile retail solutions provider behind some recent mobile POS deployments including Guess and PacSun. This is in line with VeriFone’s strategy to invest heavily on inorganic growth strategies (to the tune of $1 Billion), as the company looks to expand its presence in key vertical segments & emerging country markets.

Global Bay has focused heavily on developing mobile POS applications, particularly for the iOS platform, to support a variety of applications including (but not limited to):

• Queue busting, speedier checkout
• Scalable POS bandwidth for peak hours
• Targeted sales, personalized promotions
• Enhanced labor efficiency – enabling product information lookup

What makes this acquisition interesting is that both VeriFone and Ingenico (with its iPA280) have, over the past few months, broadened their solutions offerings beyond payment and made an entry into the mobile POS market. VDC sees the market for enterprise mobile POS hardware growing at a CAGR of 11.4% over the next 5 years to around $230 million, and expects payment terminal vendors to offer stiff competition to the other suppliers in the space.

This acquisition by VeriFone is also in line with VDC’s assessment of the customer engagement technology market back in May (here), where we discussed how this universal mobile form factor is causing convergence in the supplier ecosystem for key product types, having them compete for tighter retail IT budgets.

Is VeriFone looking to extensively leverage Global Bay’s POS application platform to drive traction for its PAYware Mobile devices or its dedicated mobile payment terminals? Will consumer devices make an even bigger push into the retail in-store environment with this acquisition? These are some of the questions we expect to get an answer to in the coming months, going into 2012, as the concept of ‘mobility’ yet again redefines the competitive landscape for some of the traditional point-of-sale solutions.

 

RFID Market Development to Date in 2011: The Treats/The Tricks (Part II)

Happy Halloween from VDC Research!  As a follow-up to Part I posted on Friday, VDC Research is continuing its brief take on the RFID market to date in 2011.  In the spirit of Halloween, this time we highlight a few of the “RFID tricks” we have come across so far this year.    

RFID Tricks:

• NFC: Is it a hype or ripe market?  We have been talking about NFC for more than a decade. Over the course of that period, we have experienced a few hype cycles.  We do agree there is a lot of hype, and the hype can be likened to what we saw in 2000 – albeit a bit more practical in its implementation today. But something useful will come out of it in the short term. Most of the hype surrounding NFC is about payments. The core issue is that this proposition only works when there is a critical mass of contactless terminals in place, and this is not happening at a break-neck pace, or if the terminals are there, then they do not seem to be used much, especially for NFC. VDC Research, however, believes that what will turn NFC from promise to reality in the short-term is real-time personal marketing, merchandising and loyalty (aka “smart marketing”). We advise industry observers to stop thinking “mobile payments” alone when you hear NFC, because payments are just the tip of the iceberg. Start thinking about a totally new medium and different paradigm – NFC-enabled mobile advertising, shopping, infotainment, loyalty and verification/access platforms for mobile devices. Then you will understand why NFC is here and happening.
• Wal-Mart retail apparel tagging slowed after a strong start in 2010.  The world’s largest retailer captured lots of headlines last year when it declared it would begin tagging several lines of apparel with RFID. Tag volumes in the billions were cited, along with aggressive timelines that have become all too familiar when it comes to Wal-Mart and RFID (recall the case and pallet tagging program volumes and timelines?). At this point Wal-Mart’s retail apparel “push” is being delayed to at least mid-2012, but this is not a big surprise to VDC Research and somewhat expected given the massive undertaking. And, Wal-Mart’s RFID stutter-steps have not deterred scores of retailers from moving forward with RFID tagging of apparel items (see Macy’s, Bloomingdale’s, JC Penney, American Apparel and others). Some would argue that the “trick” from Wal-Mart is a “treat” for other retailers who are now capturing the headlines today.
• The economy: enough said. The weakened economy is a “trick” for most industries today and the RFID market has not been immune. However, the RFID market is not contracting and VDC Research argues that the forecasted flat-to-slight growth in RFID markets is better than a decline, especially in down economy. Like many, we wish the economy would provide more treats than tricks in more sectors these days, including the RFID market.

NFC-based Mobile Payments Gain Visa's Support, but are Far from Reality

Visa recently reaffirmed its commitment to support NFC-based payments by announcing measures that will increasingly move U.S. merchants and consumers away from magnetic-stripe based cards to next-generation payment types, including EMV/chip and pin and NFC.  This is an exciting development for the NFC community, as the transition of NFC-based mobile payments from concept to reality will create significant demand for NFC-based payment solutions.

In order for this transition to mobile payments to occur, there are a number of stakeholders that must cooperate, including banks, merchants, payment processors, mobile device manufacturers and cellular network operators. Card issuers such as Visa are also among this critical mass.

While other card issuers, including Mastercard and AMEX, also are embracing NFC technology, having signed on to various mobile payment networks, the transition from magnetic stripe cards to NFC-enabled mobile payments will not happen overnight.

There are many other pieces to the NFC mobile payment puzzle beyond gaining the support of card issuers. Merchants, banks, and wireless network companies will also need to buy-in to the idea of mobile payments and work through potentially sticky issues including interchange fees, security, and which stakeholder bears responsibility in the event of fraud. Equally as important, mobile device manufacturers will need to facilitate consumers’ adoption of this technology through broader offerings of NFC-enabled smartphones. At present, a limited number of smartphones available in the US market support NFC.

NCR Acquiring Radiant Systems, Inc.

On July 11, NCR (NYSE: NCR), one of the largest global technology vendors for assisted- and self-service solutions, announced its intention to acquire Radiant Systems, Inc. (NASDAQ: RADS), a leading technology solutions provider to hospitality and specialty retail establishments. NCR extended a cash tender offer of $28.00 per Radiant Systems share, with the equity purchase price of $1.2 billion having been approved by the boards of directors of both companies. Subject to regulatory approval, this transaction is expected to close during the 3rd quarter of 2011.

NCR’s traditional stronghold has been on the Financial Services and Retail vertical markets. This acquisition gives the company an immediate leadership position in the hospitality and specialty retail verticals, with a well-known, highly regarded and broadly installed brand.  Radiant expands NCR’s total-available-market by approximately $8 billion – this large expansion of addressable market for both organizations has led them to set a long-term business model goal of more than $7 billion in revenue and growth margins in the mid-30s.

In VDC’s opinion, this deal is a very strategic move by NCR to expand into core industry verticals – horizontal integration in order to enhance market share, increase revenue growth rates and improve margins by expanding mix of software & services – offering more complementary adjacency than the Entertainment vertical. While both companies offer software and solutions, Radiant’s growing subscription-based offering will enable NCR to build more software into the overall revenue mix resulting in substantial financial benefits.

To learn more about VDC’s analysis of the deal and the implications that we expect this acquisition to have on the global competitive landscape for retail automation solutions, click here.

Global Adoption of Self-Checkout Solutions

Self-Checkout suppliers realized over $524 million in revenue during calendar year 2010, with the market expected to grow at a CAGR of 12.9% over the next five years.

Regional adoption of this self-service technology was fairly inconsistent in 2010, however, as the value derived from solution installation varied significantly across the Americas, EMEA and APAC.

1. Hardware vendors benefited greatly from self-checkout deployments with their existing client base in North America and Europe (resulting from ongoing refresh cycles or new store openings) as retailers continued to experience returns that justified continued investment in these solutions.

2. Adoption in APAC and other emerging country markets in Latin America has, however, been relatively stunted especially as low labor costs in these regions negates the primary value proposition offered by these expensive self-checkout solutions.

Suppliers are working towards driving investment in historically untapped regions and retail market segments by innovating across a variety of fronts:

- Reducing the footprint of these solutions to enable retailers to accommodate multiple self-checkout lanes in place of their conventional, assisted-service counterparts. This helps maximize use of retail floor space and expedite customer throughput while also resulting in significant labor savings.

- Focusing on the entire self-checkout process (as opposed to the technology hardware alone) and breaking it down into distinct modules – Scanning, Bagging and Payment. Modularity is a raging theme across this space.

- Suppliers are working with retailers to determine the ROI associated with deploying Cash Recycling modules at the self-checkout lane. Automating the cash handling process provides higher level of cash transparency to retailers while also significantly enhancing security and lowering shrinkage.

Learn more about VDC’s coverage of the Self-Checkout Solutions market here.

Smartphone-based Personal Shopping Solutions-Threat to the Dedicated PSS Market?

The concept of delivering PSS functionality to shoppers via their personal devices continues to gain momentum with retailers, as evidenced by Stop & Shop’s recent introduction of an iPhone-based version of its “ScanIt!” PSS.

This development is particularly noteworthy for Stop & Shop. To date, the company has been one of the most aggressive deployers of PSS solutions in the US. Prior to the introduction of its iPhone application, Stop & Shop delivered PSS to its customers exclusively via company-owned and managed devices.

Eventually, smartphone-enabled PSS may present a serious competitive threat to dedicated device PSS solutions.  However, in the immediate term, we do not expect smartphone platforms to displace installed PSS solutions, or severly limit PSS opportunities. 

Any major disruption driven by smartphone platforms will be at least a couple of years in the making. Smartphone-enabled PSS is still in its nascent stages. The development of this technology—and exploration of its potential—has barely yet begun.

At present, dedicated, purpose-specific PSS have several important advantages over smartphone-based solutions:

• Whereas smartphones rely on embedded cameras for scanning, PSS are built around actual barcode scanners. Adapting smartphone cameras for scanning reduces the speed, accuracy, and reliability with which customers are able to scan their purchases. For a technology whose primary value proposition to the customer is saving time, scanning related issues are the major drawback to smartphone-based PSS.

• Some customers simply will not want to use their personal devices for scanning. Their reasons will vary from the practical (low battery, expecting a phone call, forgot to bring the device) to the more complex (security concerns).
  
  
• Retailers will be concerned with the increased software demands associated with supporting smartphone-based PSS. Technology lifecycles with personal devices are extremely short—often 12 months or less—which will drive requirements for frequent and regular software updates, both for the customer-facing and enterprise-level solutions.
  
  
• Security issues will be a prominent concern, particularly for retailers, who will need to ensure their enterprise data is entirely secure, and that customer information is absolutely protected. In regards to wireless connectivity, deploying organizations will need to consider carefully how they will grant the necessary network and data access to customers, while protecting sensitive enterprise information.From a customer perspective, security concerns may also be a potential barrier to adoption.

In the near term, the biggest threat smartphone-based solutions present to PSS suppliers is giving potential deploying retailers another reason to delay their PSS investment, as these organizations weigh costs, benefits, ROI potential, and alternative technologies.

Until smartphone scanning issues are fully resolved, we expect dedicated and smartphone-based PSS will coexist. The role of mobile devices in the PSS market is an issue we have discussed in depth with both hardware suppliers and ISVs as part of our research for Volume 3 of our Customer Engagement Technologies. We will cover this topic in detail in that report—contact us for more information.