Square COO: There's no value in NFC
The COO of mobile payment startup Square, Keith Rabois, thinks that the mobile payment technology Near Field Communications (NFC) has no value proposition for consumers and merchants, he said at GigaOM's Mobilize conference on Monday.
Context & Ripple Effects
Square enters Mobilize week with unusual momentum for a two-year-old payments startup: a strategic investment from Visa in April, card readers on sale in Apple's retail stores, and by May some 500,000 readers shipped with $3 million in daily transaction volume. In June it closed a $100 million round at a $1 billion valuation led by Kleiner Perkins, with reports of talks at roughly double that valuation still circulating.
Against that backdrop, COO Keith Rabois's declaration that NFC has no value proposition for consumers or merchants is less a technical judgment than a statement of competitive strategy: Square's growth has come from a dongle-plus-app that works on any phone merchants already own, while NFC requires handset makers, carriers, and merchants to upgrade hardware before a single transaction can happen.
First-order effects
- Rabois is drawing a line against the carrier-and-handset-led NFC wallet push (Google Wallet launched earlier in 2011), positioning Square's card-reader approach as the only mobile payments path that requires no new consumer hardware.
- The claim puts pressure on Square's own backers' ecosystem: Visa, an investor since April, has also backed NFC-based payment schemes, so Square is publicly betting against part of its strategic partner's roadmap.
Second-order effects
- Merchants deciding between waiting for NFC terminals and adopting plug-in readers get a credible argument for the latter, which slows terminal-upgrade economics that NFC proponents depend on.
- Rival mobile wallets built on NFC must now win on something other than the radio technology itself — rewards, security, or carrier billing integration — because 'tap to pay' alone is being framed as no value add.
Third-order effects
- If Square's thesis holds and adoption follows distribution rather than protocol, mobile payments competition shifts from hardware standards battles to software and merchant relationships — a structure where whoever owns the merchant account wins regardless of how the phone talks to the register.
- A prolonged NFC stall would leave carriers and handset makers with sunk infrastructure bets and could force the industry toward hybrid readers that accept both chip cards and taps, letting the market rather than a standard pick the winner.
The trend: Mobile payments in 2011 are splitting into two camps — incumbent-backed NFC wallets requiring new hardware versus app-and-dongle upstarts like Square that monetize existing phones — and the winner will be decided by merchant distribution, not radio standards.