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

Groupe Casino Says “Ouí” to NFC, But “Non” to Payment

VDC has always maintained that NFC-enabled contactless payment is a long-term application opportunity, despite that hype and evangelism in the media often suggests otherwise. We believe NFC’s real near-term potential lies in B2C use-cases that are less complex, more easily-enabled and, most importantly, do not require the cooperation of multiple stakeholders or the use of a Secure Element (SE). Specific examples include mobile marketing, information access/content delivery and targeted coupons/offers.

Based on a recently announced NFC pilot, Groupe Casino, a major French retailing chain, evidently agrees with our view. In October, the company plans to pilot an NFC-enabled personal shopping solution at one of its upscale Paris stores. The app, called mCasino, will be provided by the France-based NFC developer Think&Go, and will support numerous functions, but payment is noticeably absent among them. Essentially, the mCasino app is an NFC-enabled, smartphone-based Personal Shopping solution that allows shoppers to scan items (via electronic shelf labels) as they shop and to access product information. The app also enables customers to set various warnings (e.g., if a shopper scans a product with ingredients to which they are allergic, or that a customer is approaching a predetermined spending limit) and pushes discounts to shoppers’ mobile devices based on their personal preferences.

Groupe Casino has been candid about its decision not to integrate contactless payment into its NFC shopping app, citing unwillingness to “rent” space on the SIM card (or other SE type) from MNOs as the foremost barrier to including payment as part of its upcoming trial. The company also expressed concerns about entering a three-way relationship that would position it as the intermediary between MNOs and financial institutions. Considering all of Groupe Casino’s approximately 400 supermarkets/hypermarkets are equipped with NFC-enabled contactless transaction terminals, VDC finds the company’s decision to exclude NFC payment from the trial particularly noteworthy. Among enterprises evaluating NFC, lack of contactless infrastructure—and unwillingness to invest in the same-- is a more commonly cited barrier to adopting NFC-enabled contactless payment.

While future versions of the mCasino app could include payment functionality, at this time, the company has given no hint as to what strategic path(s) it might pursue in this regard. Certainly, as we have previously discussed in our blogs and other research, there are several strong NFC alternatives for enabling contactless payment—including 2D Barcode, QR code and the Cloud. Considering Group Casino’s objections to working with MNOs to enable NFC-based payment, we think any future integration of contactless payment with mCasino is highly likely to leverage one of these NFC competitors.

Walmart Could Bring Self-Scanning to the Mainstream

Self-scanning adoption remains very low among US merchants, but Walmart could singlehandedly change that in the near term. The retailing giant recently announced it is currently testing its own self-scanning app, called “Scan and Go,” exclusively among employees at one of its Arkansas stores.

Self-scanning solutions, which are comprised of a barcode-reading app deployed either on a dedicated store-owned Personal Shopping device (e.g., Motorola’s MC 17, Datalogic’s Joya) or a customer’s personal smartphone, enable shoppers to scan and bag items in-aisle rather than do so en-masse at the checkout lane. Self-scanning has benefits for both merchants and consumers.

Merchant benefits include:

• Insight into customer purchasing behavior
• Visibility into store utilization/traffic patterns
• Opportunity to influence shoppers at the point of decision via targeted offers
• Larger average basket sizes (resulting, in part, from the above point)

Consumers enjoy:

• Faster check-out
• Receiving personalized/targeted offers (based on purchase history)
• The ability to monitor spending in real-time as they shop

But, despite these benefits, self-scanning solutions generally have been challenged to gain adoption within the US. Other than a couple of notable exceptions—for example, Stop & Shop and Giant supermarkets (both subsidiaries of the Dutch retailing group Ahold), there are few merchants in the US that have invested heavily in self-scanning technology.

Walmart, with over 600 US store locations, could change that dynamic quickly and decisively if its pilot goes well. VDC believes it is unlikely that the retailer will move from its current, highly-restricted pilot test directly to a large-scale rollout, but if this early self-scanning experiment is well-received, it is reasonable to expect Walmart could take steps towards a moderate- to large-scale deployment in the next 12-18 months. Even if Walmart only deployed the app at select store locations, it would provide a material lift to the US self-scanning market—and could have a greater longer-term impact if other merchants follow suit.

Assuming Walmart fully embraces self-scanning, VDC believes the Company ultimately will integrate its “Scan and Go” self-scanning app with the recently announced Merchant Customer Exchange (MCX) mobile wallet initiative, created by a consortium of merchants, among which Walmart is a founding member. Whereas the MCX m.wallet will operate across multiple retailers, any integration of the “Scan and Go” app and m.wallet would need to maintain a certain degree of separation between the two.  But, to provide consumers with the most convenient shopping experience possible, we think some level of interoperability between self-scanning and the MCX m.wallet will be inevitable.

The Rumors of ViVOtech’s Demise are Greatly Exaggerated

Well, maybe not greatly exaggerated…but certainly overstated, according to the most recent statements from the Company. The past week has brought a flurry of doom-and-gloom rumors surrounding payment terminal and solution provider ViVOtech, one of the more prominent NFC payment solution providers. While there does seem to be an element of truth to the preliminary headlines, it now appears that the outlook for the Company is somewhat less dire than the original rumors indicated. According to official Company statements, ViVOtech is not planning to cease operations, but is indeed restructuring its business to focus on mobile commerce software solutions. As part of the restructuring efforts, the company is working to divest its payment terminal/NFC reader business.

Early this past Friday, July 27th, reports (attributed to “unnamed sources”) that ViVOtech would “cease operations” circulated online, but the Company quickly issued an official statement indicating that its “business fundamentals are strong,” and that “orders and contracts are building in both its reader and software” businesses. However, despite claims that its reader/payment terminal business is growing, ViVOtech indicated that it working to divest the same. Ultimately, should it come to pass, this divestiture would be part of a broader restructuring effort via which ViVOtech will exclusively focus on mobile commerce software.

From a certain strategic perspective, the divestiture of ViVOtech’s payment terminal business is logical. Thinking strictly in the context of the cutthroat competitive forces in the payment terminal market—specifically, constant pressure on margins, increasing entrenchment of giants like VeriFone and Ingenico and proliferation of low-cost suppliers, particularly in APAC—focusing on more profitable software at first seems to be a well-advised move.

However, from a broader standpoint (one that includes sales and end-user perspectives), we believe abandoning hardware altogether is a risky strategy for ViVOtech. When it comes to payment solutions, most merchants prefer one-stop, end-to-end solution providers. Thus, by moving away from hardware entirely, ViVOtech could alienate a significant percentage of its installed base and prospective customers that may look to the Company as a payment solution provider in the future. If ViVOtech does ultimately divest its hardware business, we think the Company would be well-advised to establish partnerships, either with the acquirer, channel resellers, or other hardware-only providers, in order to maintain at least a certain degree of end-to-end capability.

Update, 8/6/2012: ViVOtech announced today that it has completed the sale of its reader business to ID Tech, a US-based supplier of contactless, magnetic-stripe, and bar code readers and related POS peripherals. No details regarding the terms of the transaction were disclosed.

NCR Makes 2D Barcode Secure Enough for ATM Cash Withdrawals

In recent posts, I have discussed some of the headwinds NFC faces in respect to achieving mainstream adoption. One of the most critical challenges facing NFC is that many of the applications it enables are achievable via other, more established technologies such as QR codes and 2D barcodes, usually with less cost and integration complexity to boot. To counter this criticism, NFC proponents are quick to point out that these competing solutions have their own shortcomings, particularly in respect to their lack of security. However, as NCR has demonstrated with the recent introduction of its Mobile Cash Withdrawal (MCW) software for ATMs, inadequate security is not always the Achilles’ heel of these NFC alternatives—it depends on how the technology is integrated as part of the broader solution.

NCR’s MCW software, which is slated for pilot testing later this year and expected to be released in 2013, requires no special hardware and can operate on any manufacturer’s ATM. The solution works as follows: A consumer wanting to withdraw cash initiates a request using NCR’s mobile banking app, which operates on Android and iOS platforms—this step can be done anywhere.  At an ATM within their banking network, the customer uses their mobile device’s camera to capture the 2D barcode displayed on the ATM, which is encoded with the location of that particular ATM. This information is then transmitted to the bank. After verifying the transaction, the ATM dispenses cash.

NCR claims the entire process from scanning the barcode to taking cash from the ATM could be as brief as 10 seconds. Improved security over traditional card-and-PIN withdrawals is an added bonus. Since no card or PIN is required, the MCW solution effectively neutralizes skimming fraud, whereby criminals rig ATMs with unauthorized recording devices in order to steal card/PIN data.

While QR code and 2D barcode will never offer the same level of security inherent to NFC, as NCR has demonstrated with its MCW software, it is possible to implement these less secure solutions in a way that minimizes (or eliminates entirely) their exposure to security threats. If other mobile application developers leveraging QR code and 2D barcode can devise implementation schemes similar to that of the MCW solution, these technologies will present an even stronger challenge to NFC. We expect this increased competition will be particularly noticeable in the realm of secure applications such as payment, ticketing and security/access control, where alternative solutions such as QR and 2D have generally been disregarded due to security concerns.

Cartes North America: Day Two in Review from Las Vegas

Today was day two of Cartes North America in Las Vegas. The VDC AutoID team had another full day of meeting vendors, listening to panel discussions and strolling the show floor. EMV migration and NFC again were the dominant themes, as we met with a number of services, hardware and end-to-end solution providers catering to every stratum of the payment value chain. Before we catch the redeye home to Boston, we wanted to share some of the most interesting offerings we saw during the day:

• Payment terminal leader Verifone demonstrated its entire portfolio of payment solutions, which encompasses a spectrum of products ranging from traditional stationary payment terminals to compact mobile payment sleds that enable payment processing via consumer devices like the iPhone, iPod Touch and Android smartphones. These mobile offerings, which are called Payware Mobile and Payware Mobile Enterprise, are the result of Verifone’s recent acquisition of Global Bay, a payment application provider. We were impressed by both Payware solutions and believe Verifone could expand its addressable market further by bringing this product directly to customers, as companies such as Square have done already.
• NXP, in its usual fashion, demonstrated its NFC ICs by showing off all the great applications their partner companies have created using their chips. Our favorite application featured at the booth was a NFC-enabled mini kiosk that allows university students to order and pay for their food remotely prior to arriving at the dining hall. We’ve been talking about the significant opportunity NFC has to improve service and throughput in QSRs (quick serve restaurants) and think this solution could be adapted easily for such applications. Imagine being able to order and pay for your morning coffee via a single tap of your smartphone—service speed and throughput could be increased dramatically, which translates into a stronger bottom line for the operator and better service for the customer. Sounds like a “win-win” to us…
• The US is a laggard when it comes to EMV migration, but if the activity Oberthur has been seeing in its EMV card business is any indication, momentum is starting to build in the US market. Oberthur has partnerships with a number of card-issuing financial institutions within the US, and during 2011, shipped approximately 2.5 million EMV-enabled cards to these organizations. While 2.5 million cards is a proverbial drop in the bucket in the context of the global EMV card market, we think this data point is an encouraging sign that some US financial institutions are beginning to take a proactive stance on EMV migration. Now it’s time to get to work on the merchant side of the equation…
• For Mastercard, 2010 and 2011 were dedicated to getting its NFC initiative, PayPass, up and running—in other words, establishing actual commercial deployments at major Tier 1 merchants. For 2012, the company is focused on scaling its existing deployments and spreading adoption of its PayPass solution to smaller regional and independent merchants. Mastercard, like Visa, has issued merchant guidelines that detail its expectations in regards to compliance with EMV migration initiatives. The company believes that as these deadlines loom increasingly closer, merchants that have been unwilling to migrate proactively will be likely to upgrade their infrastructure to EMV/NFC all at once in an effort to “future proof” their investments.

That concludes our visit to the inaugural Cartes North America show. It has been an interesting, informative and well-attended event. Hopefully we will be back for the 2013 edition.

Could NFC "Tap" into the Popularity of Mobile Barcode?

Could a catalyst for consumer NFC adoption be another type of technology? We believe it’s possible. The rapid emergence of near field communication (NFC) during the past 12 months, particularly in the context of NFC-enabled smartphones, has vendors and developers working furiously to create solutions that they hope will be The Next Big Thing. While these efforts have resulted in numerous application concepts ranging from mobile wallets to e-couponing to social networking, no specific application (or application type) has yet gained widespread acceptance among consumers. What can developers and vendors do to increase awareness for their NFC solutions? VDC believes that integrating NFC with other recognizable, more frequently used solutions already present on a consumer’s mobile device — such as mobile barcoding — can improve awareness and understanding of the technology, facilitate adoption and extend the reach of NFC.

Let’s consider, for example, how mobile barcode and NFC could complement each other in the context of a customer-facing supermarket deployment.  Barcodes exist on virtually all products being sold in a supermarket and are increasingly used throughout these stores for a diversity of applications such as pricing, information retrieval/exchange, comparative shopping, promotions, couponing and customer loyalty—but are very rarely used for payment.  NFC is a rapidly emerging technology that enables and enhances many of these applications–including payment–but is generally not used for actual shopping at the shelf, because tagging every item is too costly.  The two technologies, working in concert, could create an all-encompassing shopping solution that unifies the strengths and capabilities of both technologies into a single application deployed on a consumer-owned device. Alone, neither technology is ideally suited for all shopping applications; however, when converged, the two technologies together enable a robust solution capable of supporting the entire shopping process.

Some developers, to a degree, have recognized the opportunity to marry barcode and NFC in a single solution. MobiLead, for example, combines the two technologies for mobile marketing and information access, while DigiMo created a mobile payment solution that allows users to choose between NFC and barcode enabled payment. However, we are unaware of any offering that leverages both technologies for unique, specific functionalities—for example, barcode for scanning and NFC for payment. In both of the aforementioned examples, barcode and NFC provide redundant capability. Although these applications are a step in the right direction, we think the real opportunity lies in using each technology for the specific purpose (or purposes) to which it is best suited.

We recommend NFC providers leverage other technologies and solutions currently used by consumers on their mobile devices (e.g., barcode, GPS). Not only will blending NFC with other technologies enhance a solution in regards to its functionality and value, but it also will facilitate NFC education and adoption. 

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.

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.

Application-specific Deployments Driving Kiosks Market Growth

Suppliers experienced strong growth in kiosk installations across a variety of vertical market segments as end-user enterprises embraced a number of applications targeted at enhancing customer engagement and loyalty. Vendors are expected to derive maximum revenues from product vending kiosks & pedestal kiosk installations in big box retail chains (including department stores and mass merchandisers) and supermarkets/grocery stores.

Kiosk sales into the Government and Healthcare vertical markets tend to be highly application-specific, necessitating partnerships with the ISV community, whose domain expertise and systems integration capabilities enable vendors to adequately address the highly targeted solution specifications posed by end-user organizations.

Deployments are also seen gaining traction within the transportation vertical as airports, bus and rail stations increasingly rely on kiosks to ease congestion, lower employee headcount and reduce costs for rendering basic services. Globally, this segment is expected to register a CAGR over 9%, with suppliers generating over $100 million in kiosk sales to the transportation vertical by 2015.

VDC expects to see those vendors devoting resources toward building systems integration capabilities (in-house or via strategic partnerships) to create a compelling competitive advantage as they address & assuage enterprise end-users’ concerns regarding ROI, compatibility with existing in-store infrastructure, and overall installation/deployment costs.

To learn more about our coverage of the Self-Service Kiosks market, 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.