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

Which Application Will Drive Consumer NFC Adoption? Samsung Lets You Decide…

Which NFC application will be the first to gain broad acceptance among consumers? The answer to this ongoing question is not much clearer now than it was a year ago, despite the numerous new NFC-enabled smartphones that have reached the market during the past 12 months. Many enterprises and NFC vendors are thinking ambitiously when it comes to driving consumer adoption, with use-cases like mobile payment, mobile marketing, and other relatively complex B2C applications being the cornerstones of many enterprises’ strategies. In contrast, Samsung, a leading manufacturer of NFC smartphones, is taking a more practical approach with the introduction of its TecTiles, which are essentially NFC tags with a sticker backing.

TecTiles are simple yet versatile in regards to the applications they can enable. Using any properly configured NFC smartphone, TecTiles can be programmed to automate almost any smartphone function. Are you tired of hassling with turning Bluetooth on/off when getting in and out of the car? Program a TecTile to automate that process and stick it on your vehicle’s console. Don’t want to be “that person” at work who leaves his or her cell phone ringer on to disturb everyone else in the office? Place a TecTile on your desk to silence your phone when you arrive at work. Almost any action made with (or configuration/setting made to) a smartphone can be programmed to happen automatically with a simple tap using TecTiles.

While the use-cases facilitated by TecTiles are very simple compared to more complex B2C NFC applications, with simplicity comes accessibility—anyone with an NFC enabled phone can use TecTiles and they cost just $15 for a pack of five. As the saying goes, “you have to crawl before you can walk”—we think TecTiles are a great way to get consumers using and familiar with NFC in the present, rather than waiting (or hoping) for the day when merchants and other B2C enterprises invest in contactless infrastructure and consumer-facing NFC applications.

Although Samsung seems to be targeting TecTiles largely at consumers, VDC believes enterprises present a strong market opportunity for this product and similar tag form factors as well. From an enterprise perspective, TecTiles could be leveraged to enable and enhance a diversity of powerful B2C applications, with social media, location-based “check in” and information access being among the obvious ways businesses could leverage these tags.

No matter how or where they are used, we believe TecTiles have great potential to make NFC a little more accessible for those consumers and, in some cases, enterprises that use them for home, personal and business applications.

Part 2 of 2: Security/Access Control Could “Unlock” Domestic Opportunity for NFC

This blog is a follow-up to my previous entry, in which I discussed the market opportunity for NFC-enabled Security/Access Control in the enterprise. Security/Access control is a key non-payment use case that has driven several high-profile enterprise NFC deployments during the past 18 months.

While enterprise environments present the most obvious market opportunity for vendors of NFC-enabled Security/Access Control solutions, we believe the consumer/domestic market also has strong potential to drive near-term growth in the NFC market. As NFC-enabled smartphones increasingly win share among consumers, this domestic Security/Access Control opportunity will ripen as consumers seek to leverage NFC technology embedded in personal devices for a broader range of uses, both in- and out-of-home.

To address this emerging market, both well-established home lock/security vendors such as Yale and early-stage startup companies such as Lockitron have introduced products that enable “keyless” entry for homeowners. Essentially, these solutions combine a traditional door lock with an NFC reader and, when paired with an NFC smartphone and the appropriate app, these NFC-enabled locks allow doors to be opened and secured using a smartphone instead of a standard key.

In addition to the simple convenience keyless entry offers, these NFC-enabled locks also provide homeowners with the ability to program specific rules governing access to their home and to share access credentials with others—remotely and (of course) with no need leave a key under the doormat. For example, one could program their lock to grant recurring access to a housekeeper only for a specific day and time, or share access with out-of-town guests for the weekend.

From the perspective of driving NFC adoption in general, domestic Security/Access Control has two critical factors working in its favor: First, it offers clear, easy to understand value propositions to the consumer—improved convenience and enhanced security, among others. Second, and equally important, deploying this application is as easy as purchasing and installing the lock (taking NFC smartphone ownership for granted, of course). Unlike many other NFC applications, domestic Security/Access Control can be deployed irrespective of merchants’ contactless infrastructure investment, or the cooperation of other stakeholders.

That said, domestic Security/Access Control is not a layup growth opportunity for the NFC market. Just as competing technologies (e.g., QR codes, 2D barcodes) have challenged NFC in the market for mobile marketing and mobile payment solutions, so do others (e.g., Bluetooth, WiFi/cloud solutions) present competition in the realm of home Security/Access Control. How NFC-based solutions will fare against the competition depends largely on how strongly consumers embrace NFC-enabled smartphones and how successfully vendors can differentiate NFC-based solutions from the competition. Assuming NFC smartphone penetration continues its robust growth, we advise vendors to begin addressing the latter issue now—play the “wait and see” game, and it will likely be too late.

Part 1 of 2: Universities "Tap" NFC for Campus Security/Access Control

Security/Access Control is one of the leading non-payment NFC applications. Generally, NFC-enabled Security/Access Control deployments to date have been within corporate or academic campus environments, but home security vendors are beginning to introduce products that leverage NFC for domestic applications. Accordingly, we will examine this application in greater detail from the perspectives of enterprise/campus and consumer/domestic deployment. This part 1 of 2 will discuss enterprise/campus Security/Access Control, while the following post will focus on consumer/domestic applications.

We’ve said it before, and we’ll say it again: contactless payment and mobile commerce applications are only the proverbial tip of the iceberg in regards to the diversity of applications NFC enables. Security/Access control, particularly for physical (e.g. corporate/academic campus, floor, room) applications, is among the other NFC use cases VDC has been monitoring with expectations for near-term growth.

Almost one year ago, Arizona State University launched an NFC access control pilot program that enabled students to emulate their contactless campus access cards via their NFC-enabled smartphones. The pilot, by all accounts, was well-received by all ASU stakeholders. While students appreciated the convenience of using their smartphones in lieu of traditional access cards, ASU administrators viewed the solution as a major stepping stone towards a future where all campus credentials could be created, issued and managed virtually, thereby saving considerable costs associated with the issuance and management of traditional access cards.

Following in the footsteps of the ASU pilot, two new NFC access control campus initiatives are underway. The University of San Francisco, in partnership with security/safety solution leader Ingersoll Rand Security Technologies and campus access card solution provider CBORD Group, recently announced a multi-phase rollout of NFC-enabled campus card credentials that support physical access control and basic payment functionality at university-owned laundry facilities. The solution combines CBORD’s NFC-enabled card solution with Ingersoll Rand’s aptiQmobile mobile app and multi-technology door readers, thereby providing students with the option of using traditional access cards or emulating their credentials via an NFC-enabled device. After a small-scale rollout that was highly utilized by students, the university is moving forward with a broader expansion across its campus.

Similarly, the European Institute of Innovation and Technology (EIT) also plans to pilot an NFC access control solution at its Stockholm, Sweden campus beginning this month. The EIT access control system represents the cooperative efforts of NFC security solution provider Telcred and TSM provider Ericsson, and will control staff, researcher and student access to various campus buildings, rooms and facilities via contactless smartcards and NFC-enabled smartphones.

VDC believes applications such as security/access control and ticketing, which are generally deployed in closed-loop environments (e.g., corporate/academic campuses, transit networks) will continue to drive near-term enterprise adoption of NFC. As the aforementioned deployments demonstrate, closed-loop deployments benefit from the involvement of fewer stakeholders and minimal decision-making friction, issues that plague more complex applications such as contactless payment. 

Stay tuned for Part 2 which will examine the potential NFC-enabled Security/Access Control has in the home...

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.

Apple Confirms m.Wallet Application in iOS 6…

...But, contrary what the NFC-related rumors swirling around Apple would suggest, this app uses QR codes, not NFC. At the company’s 2012 Worldwide Developers Conference (WWDC) keynote address, the company introduced an updated version of its mobile operating system, iOS 6, which features Passbook, a new mobile wallet app that enables a range of cards, tickets, coupons and other credential types to be stored electronically in a mobile device. Passbook is an app tailor-made for many of the use cases associated with NFC—transportation and event ticketing, loyalty, mobile marketing/couponing and, of course, mobile payment, but leverages QR codes instead of NFC. At least for the time being, Apple remains on the sidelines of the NFC ecosystem.

Unfortunately for NFC and the vendors working to bring this technology to the mainstream, competing solutions like QR codes can enable many of the same applications as NFC with far less complexity and cost, although QR codes lack the inherent security NFC offers. Unlike NFC, which requires merchants to invest in contactless infrastructure, QR code-based apps generally can be enabled without major hardware investment, since they leverage hardware such as scanners/imagers that are already installed at most merchants. VDC views the costs associated with specialized contactless hardware as one of the most immediate and obvious barriers to merchant adoption of NFC.

From a consumer adoption perspective, NFC is equally challenged due to relatively weak awareness and accessibility. While QR codes are highly recognizable and printed on everything from real estate signs to product packaging to billboards, NFC-tagged items are highly uncommon and, not surprisingly, lack the immediate recognition of QR codes. As with merchants, consumers do not require a special device to read/display QR codes—almost any common smartphone is capable of supporting a QR app, making QR codes far more accessible to the masses today. In comparison, the population of consumers currently using NFC, while growing, is still highly limited. While NFC smartphone penetration levels could in theory one day approach the levels of smartphone adoption in general, but at this point in time, such a reality seems to be at least several years away, if not entirely uncertain.

To be clear, this recent announcement does not by any means preclude Apple from integrating NFC in its future hardware or software offerings. However, it clearly demonstrates that the company can and will enable many of the same applications (such as an m.wallet) discussed in the context of NFC via alternate technologies. Could Apple announce its support of NFC with the iPhone 5 later this year? Certainly—but we advise any enterprise evaluating NFC investment not to bank on it. 

NFC Secure Element Issue No SIM-ple Matter: Key Questions Surface at London Underground

SIM-based secure elements (SEs) do not meet the performance requirements for applications—such as transportation ticketing—where customer throughput is a key metric. Well, this is at least the opinion of Shashi Verma, the Director of Customer Experience of the London Underground. Verma recently went on record stating that current SIM-based SEs are too slow to deliver the required levels of passenger throughput on London’s public transport network. The critical question of SE ownership is a contentious issue that could potentially delay the broad deployment of secure NFC applications—such as ticketing, contactless payment and security/access control. While this recent development at the London Underground does not provide any clear resolution to this complex issue, it sends several clear messages to stakeholders in the NFC market:

• Change is not always for the better: Earlier NFC ticketing pilots leveraged smartphones with embedded (as opposed to SIM-based) SEs and delivered acceptable passenger throughput levels for ticketing. More recently, SIM-based SE architectures have become favored by MNOs, despite the fact this design slows transaction times. This brings to mind the adage “If it’s not broken, don’t fix it.”

• Vendor interests must be subordinate to those of the end users: The aforementioned shift to SIM-based SE architectures was driven in part by MNOs’ efforts to capture revenue derived from SE ownership, since the MNO generally owns the SIM card. However, if SIM-based architecture is inadequate to support secure applications, the question of SE ownership becomes a moot point—the SE will not be leveraged for these applications anyway, since it may fail to deliver on any number of performance metrics—with the key issues in the case of the London Underground being transaction speed and throughput. NFC vendors must act with the interests of their customers in mind—money-grabbing schemes ultimately benefit no one.

• Now is the time to get the NFC SE right: Time is of the essence for NFC vendor-stakeholders to resolve issues surrounding the SE and bring NFC to the mainstream. Despite broad availability of NFC-enabled smartphones and robust consumer interest in secure applications such as ticketing and m.payment, activity has been sporadic as issues such as SE ownership have hamstrung early secure application efforts. With the relentless pace of technology innovation today, the window of opportunity “to get NFC right” is finite and fleeting. If NFC vendors fail to meet the requirements of prospective end users, competing solutions/providers will capture these opportunities. NFC already faces outside competition in the realm of payment, with cloud-based solutions from companies such as PayPal vying for supremacy in m.payments.

The contentiousness surrounding SE ownership is understandable, as control over this critical device component has considerable implications in regards to a stakeholder’s ability to generate new revenue streams from the enablement of certain secure applications. While MNOs seem to be the early leaders in the battle for SE control, this issue is far from resolved, especially in respect to which SE architecture(s) will ultimately be favored. The questions surrounding SE ownership and architecture are just two of the complex issues we will address in our upcoming NFC: Voice of the Customer Series. Contact us for more information.