Best Buy and 7-Eleven have announced that they will be shutting down their near-field communications capabilities in their retail locations, pointing to further struggles for NFC-based mobile payments.

NFC has been weak to take off as a mobile payment technology despite the efforts of Google Wallet and Isis. Best Buy and 7-Eleven are realizing that it is not worth the cost for them, while at the same time hinting at the possibility of branded plays for their own mobile payment solutions.

“NFC was enabled at some 7-Eleven locations several years ago,” said Margaret Chabris, director of corporate communications at 7-Eleven, Dallas. “As these older PIN pads have been replaced/upgraded, we have chosen not to invest to enable NFC. This decision was made based on several factors, but it is difficult to build the business case given low customer acceptance, transaction costs and other factors.

“There is not much difference between tapping or swiping a card,” she said. “For various reasons NFC-based mobile payments options have yet to gain traction, and NFC provides no real benefit to the customer over other less costly options.

“At this time 7-Eleven does not accept mobile payments, but are looking to include this function in the future. We continue to be a strong supporter of MCX and its approach to mobile payments.”

NFC no more
Despite the fact that major players such as Google and Isis have banked on NFC, the technology has failed to gain steam. Many phones still do not have NFC capabilities, and merchants are required to install additional hardware to leverage the technology.

At the Mobile Shopping Fall Summit last year, a Forrester executive said that she did not expect NFC to ever take over the mobile wallet space (see story).

Even Google and Isis have showed some struggles with NFC. Google launched a physical card, suggesting that its app is not enough, and Isis created an Alliance Program for merchants, implying that retailers are struggling to adopt NFC on their own and require the help and comfort of a network system (see story).

With merchants such as Best Buy and 7-Eleven shutting down NFC capabilities, it may soon be time for Google and Isis to throw in the towel.

“I’ve always been a bit of a Negative Nancy with regard to NFC for mobile payments,” said Paula Rosenblum, managing partner at Retail Systems and Research, Miami, FL.  “It always struck me as a solution looking for a problem, with the purveyors looking to take a percentage of the fees being spread around.”

Mobile alternatives
One of the reasons that merchants may decide to shut down NFC is simply the cost. There is just not enough demand to justify the costs of enabling NFC in-store.

Additionally, banks are charging higher transaction fees for smart card and NFC payments.

“The risk/reward ratio isn’t favorable,” Ms. Rosenblum said. “Customers aren’t clamoring for it, it doesn’t really cost the retailer less, it has perceived security risks attached to it and the customer may well be alienated by the seeming privacy intrusion.”

Another reason for the move may be that the merchants are trying to squash competition in favor of an alternative mobile payment solution.

Both Best Buy and 7-Eleven are part of the Merchant Customer Exchange, or MCX, which is expected to come out with a mobile payment service any day now. This solution is expected to be based on bar codes, which would negate the need to accept NFC.

Alternatively, 7-Eleven and Best Buy could even be looking into launching their own branded mobile payment solutions like Starbucks. 7-Eleven in particular has put a lot of effort into its app with easy coupon redemption in-store, and a complete payment system may not be far off.

“There is definitely some truth to these retailers claims that shutting down NFC helps them save costs,” said Brian Stein, managing director at Pervasive Path, Cleveland, OH. “Maintaining the NFC terminals and higher credit card transaction fees are part of the issue, but there is also the issue of educating your cashiers to accept NFC payments.

“While none of these costs are necessarily crippling to the business, without an offsetting value proposition, the question for these retailers is, ‘why bother to support NFC’?” he said.

“Given that both Best Buy and 7-Eleven are both prominent members of the Merchant Commerce Exchange, any benefits they’d receive from mobile payments, such as consumer loyalty and data insights, will not come through NFC transactions on a third-party app, but rather their own branded/MCX wallet applications, which do not leverage NFC.  In this case, encouraging the use of other digital payment methods, including NFC, actually detracts from the retailers’ own offerings.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York