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

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.

Retail Technology Convergence

Consumers today are increasingly leveraging the incredible depth of information available to them and exercising total control over the purchase process. By necessity, retailers are embracing this shift in control, taking the checkout to wherever the customer may be (case in point: large-scale mobile device deployments in Home Depot and Nordstrom). Suppliers of customer engagement technologies have, similarly, had to be agile and learn the importance of channeling their customers’ input into device functionality and solutions set. A recurring theme across many, if not all, of the technologies that we cover here at VDC has thus been mobility. Be it a mobile POS, transaction terminal, receipt printer or a personal shopping device. 

The need to expedite the check-out process and effectively engage today’s increasingly mobile customer while also presenting a technology-forward image in order to strengthen loyalty seems to be the driving factors for growing adoption across all strata of technologies. What is even more interesting is the degree to which the form factor is being patterned according to consumers’ personal handhelds – never before have consumer products influenced enterprise-grade technologies to such an extent.

This new universal form factor is blurring the lines between some of these customer engagement technologies, which have in the past had their suppliers enjoy distinct boundaries encompassing target markets/verticals, feature & functionality sets, and expectations that were more or less set in stone. For instance, POS Terminal bellwethers such as NCR, IBM and Wincor Nixdorf are today directly competing for tighter retail IT budgets with vendors such as Motorola, Honeywell, VeriFone and Ingenico who have each, to varying extents, expanded their portfolios or device functionalities to include mobile POS solutions. Consumer-grade Apple products with integrated barcode scanners and card readers are also in very high demand especially amongst fashion retailers. While these are currently complementary to their stationary counterparts, VDC’s latest research on the POS market indicates a much higher annual growth rate for mobile devices which will eventually come at the expense of this traditional form factor.

At what pace is investment on these mobile devices taking place? How is this tussle between traditional and next-generation form factors shaping up? How are suppliers enhancing their software solutions portfolio to run seamlessly across a plethora of disparate technologies? For answers to all of these questions and more, stay tuned to our continued coverage of Customer Engagement Technologies (CET).