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Tap and Pay: Enhancing the Retail Experience with NFC

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At one time, the epitome of consumerism was expressed in one hectic day for retailers – Black Friday. However, trends are shifting and digital is taking over. Retailers now celebrate Cyber Monday with special offerings, complimentary shipping and the like. As both the consumer and retailer adapt to these changes, technologies like Near-Field Communication (NFC) and contactless payments challenge us to redefine what we once knew about both the in-store retail experience and online shopping.

NFC: Transforming Retail

As the digital economy shifts into high gear, it’s becoming increasingly obvious that retailers need to transform the in-store customer experience to stay competitive.

Time and convenience are two main drivers of consumer purchase decision; consumers either purchase items in-store because they cannot wait for shipping, or they purchase online because they do not have the time or inclination to visit a store.

Either way, ease is at the center of the customer experience. With the implementation of NFC, retailers can make shopping easier, enhancing the overall customer experience.

NFC, the emerging technology that uses electromagnetic radio fields to transmit data between two sensors, became a viable technology for use in a retail environment back in 2006 when an NFC chip was included in the Nokia 6131 cellular phone. Over time, smartphone producers began to introduce more NFC-compatible devices and subsequently, many markets across Europe, Asia, and Japan adopted a fairly widespread use of the technology.

NFC for retail took another leap forward in 2011 when Google rolled out the NFC-enabled Google Wallet mobile payments system to “make secure payments fast and convenient” by allowing users to pay for goods at local retailers with a tap of their smartphone. While sounding great in theory, retail merchants have been slow to embrace NFC mobile payment technology in practice.

However, this may soon change. Thanks to the continued rapid pace of global smartphone adoption, coupled with Apple’s entry into the NFC mobile payments market via the iPhone 6 and Apple Pay, NFC mobile payments are expected to enjoy rapid growth in coming years. Research firm Gartner forecasts that the value of NFC-generated mobile payments will rise sharply from the $5 billion realized in 2013 to almost $22 billion by 2016.

Redefining the In-Store Experience

While NFC may be slow to hit the retail mainstream, certain forward-thinking retailers have already begun to utilize this opportunity. In 2012, Burberry, the UK luxury retailer known for its ability to engage customers in new ways while staying true to the brand’s classic image, introduced radio-frequency identification in their flagship store in London. By attaching NFC chips into product tags and outfitting stores with digitally-enhanced mirrors, Burberry was able to literally enhance the shopping experience: customers trying on an item near a mirror were able to see how the garment was hand-crafted or how it was worn on the runway, displayed on the mirror. A similar experience was implemented at other locations, although in this case the images would appear on the customer’s mobile device rather than on the store’s mirrors. Part of Burberry’s Smart Personalisation campaign, this promotional video offers a glimpse into the highly-unique in-store experience.

With the easy ability to research product details and reviews online, Burberry responded to the desire of customers to view a visit to the store as an experience rather than a task.

For customers looking for ease of shopping, Bon Ton delivered. The US regional department store used NFC in their shoe display to allow customers to learn more about the styles and colors offered and check for store and online availability. Bon Ton rolled out this technology in 32 of their stores and even offered a tablet for customers without a NFC-compatible device to use while shopping. Even though the implementation was limited to a handful of locations, the feedback was positive, with most customers finding the NFC resource helpful and easy to use.

The example of Bon Ton shows how NFC technology can create mutual benefit for both retailers and customers, providing the latter easy access to detailed product information while they shop, and freeing store clerks from the need to field basic questions from customers while they browse.

NFC Mobile Payments

While Burberry and Bon Ton offer great examples of unique ways to implement NFC, the more common application is mobile payment terminals, which offer the promise of finally removing the “fumbling for a credit or debit card” experience at the point of sale.

With NFC mobile payments, retail customers are able to keep their credit card information stored on their smartphone or tablet and pay with a simple tap or wave of the device on or near the merchant’s NFC payment reader.

If it’s really that simple, what haven’t NFC payments caught on like wildfire?

Despite the theoretical allure of NFC mobile payments, real-world adoption has been bedeviled by a number of factors, including slow integration on the part of smartphone manufacturers, outright resistance from mobile carriers, spotty adoption by merchants, and security concerns of consumers.

The wheel probably didn’t start rolling right away, so there’s still time for this technology to take off. In reality, sometimes it takes time for new technologies (particularly those involving money or payment) to achieve broad consumer acceptance and mainstream adoption. That said, recent evidence suggests NFC may be finally gaining traction.

With some big players in the NFC market like Google Wallet and Softcard, mobile transactions doubled in 2013, accounting for 17% of all transactions made. Researchers at Gartner estimate that the US will see a 35% annual growth in NFC mobile payments between 2012 and 2017 as more users and merchants update to adopt compatible devices. It’s worth noting that the Gartner study was conducted before Apple announced its new NFC-enabled devices.

Another development that may hasten NFC adoption concerns the October 2015 deadline for merchants to adopt the more secure token-based EMV (Europay, Mastercard, Visa) chip technology, which uses unique electronic tokens to route payment transactions instead of static account numbers found on magnetic strip credit and debit cards. The move to EMV requires merchants to replace existing point of sale (POS) terminals with newer machines that accept EMV technology. As part of this upgrade, many merchants are expected to transition to NFC-compatible POS systems in coming months/years.

NFC and Omnichannel

2013 research from Forrester cited in Forbes noted that 38% customers check a mobile device for inventory en route to a store location, and 50% of customers expect to be able to purchase online and pick up in-store. Numbers such as these help explain why many retailers now offer features like “pick up in store” on their web and mobile sites in an attempt to satisfy consumers preferring to shop across multiple channels.

Digital wallets and NFC mobile payments work in tandem with such features, enhancing the customer experience by allowing customers to pay online with their saved card information or simply tap and pay when in store.

As the retail industry goes through a fundamental metamorphosis, companies with physical locations are doing their best to adjust to the new realities of the omnichannel retail environment.

Retail brands are being pushed to seamlessly align all sales and marketing channels to create frictionless, hassle-free consumer experiences. For example, J.Crew leverages its online inventory in-store by offering iPads for shoppers to order any out-of-stock or online-only items with little effort. Imagine how this experience could be made even easier by merely requiring the customer to tap their mobile device to the tablet instead of entering their purchaser and shipping information. With NFC incorporated into an already successful digital experience, retail channels will become so integrated that the very concept of “channel” will utterly disappear in the eyes of the consumer.

We’re still in the early days of NFC adoption for retail. In the years ahead, you can count on NFC to play an ever-expanding role in the redefinition of retail. Whether employing NFC technology to create novel in-store experiences, improve the ease of shopping, or streamline the payment transaction process, countless opportunities await for retailers interested in getting the most out of NFC.

Questions

  1. What are some other examples of brands using NFC to enhance the retail experience?
  2. Will NFC mobile payments finally take off now that Apple is supporting the technology?
  3. Outside of retail, how can companies incorporate NFC into their IDM strategy?
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