Lots of Tweets today about Google’s new Near Field Communications (NFC) Wallet announcement. Here’s the CNN report http://bit.ly/k9MtPv

For the uninitiated, NFC is a wireless contactless technology similar to Bluetooth. You just wave your phone near the reader to process a transaction. You need to be near an NFC reader and have a corresponding chip in your mobile device for this to work. This lends itself nicely to store and public transportation transactions, for example.

The first question is whether this will replace credit cards. I don’t see that happening until PC makers start installing NFC chips in desktop computers. How else are you going to shop electronically? I suppose you could have a Google wallet online that you can use to make payments. Didn’t Microsoft try this philosophy with the Net process where you could log into multiple sites with one set of credentials? Add payment processing and there’s your answer.

It turns out that there are reports that the new Windows 7 phone will also have an NFC chip in it. The technology is starting to reach a critical mass.

One of my LinkedIn groups has been debating whether this will replace QR codes, those funky 2D codes that have started popping up in ads. Imagine if you will that you click on a QR code with your phone and type a password and you can make a payment. You could click on ads in magazines or even billboards, and you don’t need to have new hardware, and you don’t need to be close to the billboard. It seems to me that the same backend needed for NFC to work could also make a QR code payment system feasible. For a lot less money.

The big hold up is who is going to clear the payments? Wireless carriers who will see higher rates of delinquent payments if the monthly bills get too large? The same carriers who also are not willing to float credit? It seems that they will have to partner with credit card companies to make this work.

Stay tuned!

This article does a good job explaining the current state of mobile payments with regards to the major wireless carriers. One other concern that’s not specifically addressed is that the carriers didn’t want to shoulder the risk from payment fraud.

http://www.computerworld.com/s/article/9216407/Isis_wireless_carriers_back_off_separate_mobile_payment_network

Will NFC (Near Field Communications) get traction for anything but speedy local transactions like paying for public transportation? We seem to be lagging the rest of the world in this respect.

The gift card industry is going through dramatic changes due to the widespread growth of smart phones.  These devices have become the hubs of many people’s business worlds, upending the business models of companies selling day planners, rolodexes and other legacy information storage tools.  As familiarity with eCommerce and mobile payments platforms continues to grow amongst an increasingly tech-savvy population, it’s only logical that developers would start to focus on ways of replacing traditional gift cards with mobile payment options.

Retailers love to sell gift cards.  Although they cannot recognize revenue until the card is used or otherwise expires, the sale creates a captive audience.  In other words, unlike a gift of cash, which can be used however the recipient chooses, a company gift card is what is known as a “closed” system, and can only be used for that company’s products.  Also, a gift card feels less impersonal than a cash gift, allowing the recipient to choose what they’d like, but reassuring the buyer that there was at least some personal touch made on their choice of gift.  Gift cards also often have expiration dates, and any unredeemed value goes back to the merchant.

A mobile gift card is a gift card that is purchased online and then is sent electronically either to a recipient’s email address, or via SMS text to the recipient’s phone number.  Some forms of gift cards are delivered as bar codes which can be redeemed by holding ones phone up to a scanner at the point of purchase.   This technology is similar to what the airlines are adapting for mobile check-ins with electronic boarding passes.  A numeric code is usually also delivered in case the cashier has to make a manual entry, if they don’t have the correct POS technology.  The recipient simply enters the code into the coupon section to make an online purchase.

There are pros and cons of giving mobile gift cards.  Some pros: unlike a physical card, fulfillment costs are very low, and delivery is very fast.  The business doesn’t need to produce and send a physical product – only an email or text message with an identifying code.  The obvious advantage here for the consumer is that last minute gifts will arrive on time, with pinpoint delivery to the minute, if necessary.  The main downside to mobile gift giving is its impersonal nature – the lack of a tangible item which would normally be included in an envelope and physically delivered to the recipient.  There’s a fear by merchants that there will be less of an emotional attachment to a “virtual” gift.  However, it seems that this fear will diminish as the younger more smart phone-centric generation gets older.

One terrific added benefit of mobile gift cards is the market intelligence it provides to businesses.  When a customer buys a traditional gift card and pays cash, the merchant learns very little info about the buyer.  On the other hand, when a customer logs into a web site and creates an account to buy a gift card, their address and other profile info is usually recorded.  When the buyer subsequently sends the mobile gift card, either via email or through SMS, the merchant gets to see both ends of the transaction.  Buying patterns can be tracked – frequent buyers can be offered incentives and other loyalty rewards, and recipients can be sent offers to encourage them to redeem their gift card.  This is very valuable info, and it’s hard to duplicate this with traditional gift cards, even with sophisticated bar code tracking systems.

Amazon is probably the largest online gift card merchant in the world.  In January 2011, LivingSocial sold 1.3 Million Amazon gift cards in a wildly successful promotion.  An Amazon gift code is redeemed online, and the balance is applied to a person’s account.  Amazon gift cards lend themselves well to online promotions such as invitations to fill out surveys.  Participants can be told they’ll get a code in some mystery amount, and they have to go to the Amazon web site to find out how much the value is.  This suggests an additional market niche for mobile gift card companies.

A leader in mobile gift card services is San Diego-based Transaction Wireless, with a diverse group of customers including AMC Theatres, Applebee’s and Travelocity.  Transaction Wireless offers a full range of mobile gifting solutions, from B2C mobile cards, B2B channel solutions for resellers who want to host their own programs, and a range of marketing intelligence tools to help customers track program success.  Business appears to be booming.  The company reports in a recent web site press release that their clients have reported sales jumps of 300 to 500 percent for the recent Valentine’s Day gift giving period.

Generator Research predicts strong growth for the mobile gift card industry, expecting over 490 million customers to use mobile payments by 2014, resulting in a $633 billion annual market growth.  Mercator Advisory Group, described on their web site as “the leading independent research and advisory services firm exclusively focused on the payments and banking industries globally,” suggests that digital gift cards are poised for success.  In a March 2011 report entitled “The Future of Prepaid Cards is Not Plastics,” Mercator cites a survey by RSR Research stating that only about half of the top 100 Internet retailers use mobile gift cards.  The report also mentions that only a third of the Top 100 brick and mortar retailers offer digital gift cards, so there’s obviously room to grow.

Mercator lists Transaction Wireless and their competitors Dimpledough, GIftango and CashStar as the four major providers of gift card services.  From a quick reading of the web sites, all four companies understand that a successful mobile gift card marketing program is as much about measurement as it is about technology.  Features the companies promote include the ability to track whether the recipient opened the mobile gift card, whether the card balance was redeemed, and even support for familiar marketing techniques such as A/B testing.  Clients can try different designs to identify which ones have the best response rates.  Doing something like that in the real brick and mortar world would be much more expensive.  Some of the companies even offer links to their clients’ card purchase storefront, as an added benefit of partnership.

As the mobile revolution continues, few traditional industries will be unaffected.  Businesses are going to have to adapt their sales and marketing practices to succeed.  The mobile gift card industry is at the forefront of embracing technological changes and helping their customers leverage technology for maximum profitability.

American Express announces Serve in the battle to control mobile payments. Google rumored to be cozying up with Mastercard http://money.cnn.com/2011/03/28/technology/american_express_serve/index.htm?source=cnn_bin&hpt=Sbin

This could be the tipping point that signals the arrival of smart phone payments.