Making a business case for Contactless / NFC paymentsPosted: May 14, 2014
Since the time I posted an article regarding NFC payments back in October 2013, I had a dozen of interesting discussions featuring the future of Contactless / NFC payments. Oddly enough, the most reoccurring question touched the point on when NFC payments will finally take off and do the magic. Well, the good news is – Contactless / NFC payments already took off, bad news is – Contactless / NFC payments are not suitable for every business.
Like every other initiative or project, introducing Contactless / NFC payments need a strong business case. Creating a business case is always a bit tricky and involves some magic, but luckily for NFC, we can use facts and figures to see whether Contactless / NFC payments will work for one’s business or not.
The basic fact is that Contactless / NFC payments do have quantitative limits. Those limits are put in place by card issuers like VISA or MASTERCARD and are quite simple:
Rule one: a single NFC purchase may not exceed 20 EUR
Rule two: a cumulative of all NFC purchases may not exceed 60 EUR
Any purchase failing rule one or rule two will be forced to be processed on-line (connection between the POS and the bank will be established) and will require card holder authorization (PIN or signature).
So back to the business case. Let’s go through simple steps.
Step one: Can you sell your goods for a price under 20 EUR? If you can’t, then you can happily forget about Contactless / NFC as your purchases will violate rule number one. Here you need to determine the average value of purchases in your stores or the value of articles most commonly sold. If, for example, the average purchase from your business is around 15 EUR, you’re safe and can proceed to step two.
Step two: Doing local research. For any Contactless / NFC payments project to be successful, you need your customer to actually have Contactless / NFC payments ready devices. Those include – bank issued cards, Contactless stickers, NFC sim cards or NFC capable smartphones. What is the penetration ratio of Contactless / NFC payments capable devices on those markets you operate? No idea? … you can find out more from local banks, bank associations, government financial authorities or from card issuers like VISA/MC/AMEX/DISCOVERER.
Step three: Doing the math. Here we need to calculate total cost of Contactless / NFC payments implementation. Those may include but are not limited to: eventual purchase of new POS terminals including roll out costs, adjustments to POS software, adjustments to in-house payments processing software, testing and certifying the whole HW/SW solution by given authority (acquiring bank, VISA/MC, any government offices), solution testing in-house or externally, training of your IT staff, training of your sell guys, marketing costs (advertisement, printed posters and stickers in your stores, promotions), eventual incentives to customers using Contactless / NFC payments (even if for a limited time). There you go, now you have your total cost of Contactless / NFC payments implementation bill.
Step four – allocating financial resources. Should you have enough money ready to play for the whole total cost of Contactless / NFC payments implementation bill – then you’re safe and proceed further. Should you be short of funding, you can consider contacting other bodies that will benefit from your Contactless / NFC payments implementation. Those are banks and card issuers. Their profit is clear – more card transactions means more transaction fees for them. Try to negotiate some sort of support from your acquiring bank, try to contact other banks and ask whether they can support your project. Go and ask your local VISA/MC/AMEX/DISCOVERER office for marketing or incentive support. Depending on the quality of your project, the size of your business or actual situation in your market … you might be able to receive significant bonuses.
Step five – blending all information into a business case. Now you know whether you can actually sell your goods for NFC-friendly prices, know the penetration ratio or Contactless / NFC devices in your markets and have completed a basic balance sheet. Now just add your expectations from a successful Contactless / NFC payments project and ready you go … your business case is ready.
Having a business case for Contactless / NFC payments is just the very first step and there are many more to do before your business will start accepting Contactless / NFC payments and generate extra revenue / profit, but every journey begins with the first step.