NFC TimesThe premier source for news, analysis and commentary on
Near Field Communication and all contactless technology

The senior director of financial services for Best Buy, the largest consumer electronics chain in the United States, said she believes NFC holds great promise but fears costs will be daunting, standards are insufficient and the chain’s customer data might be used to benefit competitors.

Stephanie Swain, speaking at the recent NFC Payments USA conference in Miami, noted that Best Buy already accepts contactless payment from cards and stickers in its 1,100 big box stores, “so we do see the potential and are really excited about what NFC would bring.”

But Swain fears it could cost the chain plenty to upgrade terminals to accept NFC-based offers, despite the retailer having equipped the 1,100 stores to accept contactless payment from cards not long ago.

“You know what, based on every conversation I’ve had with wallet providers today, I can’t use those NFC (contactless) readers for couponing and loyalty,” she said. “That’s tens of millions of dollars we just invested a little over two years ago and that hardware is worthless to me; not worthless in that we can accept payments, but it doesn’t help me facilitate the long-term vision of what NFC can deliver to the customer.”

In particular, mobile and NFC could help Best Buy expand its multichannel sales approach, which targets consumers both online and offline, from a variety of devices. NFC-based wallets that enable customers to tap their phones to pay and redeem coupons and offers could help Best Buy close the sale, Swain said, adding that it’s not coupons or discounts in particular but interactivity with customers that counts.

Best Buy, like other retailers of big-tickets items, needs to find ways to keep customers from using its stores as showrooms for products they research online on their smartphones, she said.

“We know that customers are in our stores today using their phones, buying from someplace else,” she said. “It drives us nuts. So, we have to develop this robust mobile experience that will keep customers from leaving and want to buy that product from us, right in our stores.”

Best Buy's cost and data-protection concerns are shared by a number of other merchants and represent key challenges such wallet providers as Google, Isis and PayPal have to overcome in order to recruit more retailers for their initiatives.

Terminal Concerns
Swain said it’s her understanding the terminals would need NFC chips that could offer two-way communication with phones for couponing and loyalty, not just simple contactless chips that work now for payment.

A spokesman for Google, which has been the most aggressive in pushing the NFC offers feature among wallet providers, said that “most NFC readers” could be upgraded with software to enable them to accept offers, loyalty points and gift cards through the Google Wallet. But this might indicate the readers have to already carry the two-way NFC chips. 

Erik Vlugt, vice president of product marketing, integrated systems, at VeriFone, the largest supplier of POS terminals in the United States, said in a statement to NFC Times that coupons, offers and loyalty programs could be sent from phones to readers using either the NFC standard, ISO/IEC 18092 or the separate contactless standard, ISO/IEC 14443. The Best Buy terminals support the latter. Vlugt added that VeriFone can't comment on the Best Buy situation in particular, since it doesn't supply the terminals to the merchant.

But a source at Ingenico, another major POS terminal maker, told NFC Times he believes the Best Buy terminals would require a hardware upgrade to accept offers and loyalty, if they only support simple contactless payment. “In general, older legacy devices are not designed to support (ISO/IEC) 18092,” he said. “They require a hardware upgrade.” He added that Ingenico also is not supplying Best Buy with terminals, which were likely supplied by Hypercom USA, now called Equinox Payments.

When asked by NFC Times whether wallet providers such as Google have offered to pay for new terminals or defray costs, Swain indicated they would give “incentives.” She declined to elaborate.

But NFC isn’t the only updated feature chain has to think about for its POS terminals, she added. With Visa Inc., the largest U.S. payment network, beginning to push merchants and other parties to move to the more secure EMV standard for payments, Best Buy will eventually need to upgrade to the standard, said Swain. 

“Any provider can give us incentives to move to NFC; the (card) associations did it before,” she told NFC Times. “EMV is the question. It’s hard for us to anticipate.”

The Ingenico source noted that the latest terminals can support contactless, NFC and EMV, all in one. Visa is also offering incentives for merchants to accept contactless and NFC payment, along with EMV. The EMV standard can work on either contact smart cards or contactless cards or applications on NFC phones.

But Visa's biggest incentive for EMV, a liability shift, doesn't take effect until late 2015. And there still are key questions about requirements for any EMV rollout in the United States, such as will consumers have to enter PIN codes to complete transactions. All this uncertainty could have the unintended effect of delaying rollouts of NFC-enabled terminals.

“It’s really hard to look my CEO in the eye today and say, yeah, you know those tens of millions of dollars we just, just spent (on terminals supporting contactless)? Well, we have to do it again,” said Swain. “I’m not going to be able to go to them twice, just because I’m trying to accelerate NFC in our stores and not knowing what EMV is going to require of us. Now, we have lots of conversations with our hardware provider. We think we understand, but again we thought we understood two years ago.”

It also requires time to change terminals, about 18 months, especially for merchants with integrated POS systems, she said.

Interoperability Questions
Even if Best Buy were to commit to supporting a wallet provider, it doesn’t know if the coupons and offers could be accepted from customers using other wallets, Swain said. She indicated that among representatives of wallet providers that had talked to her were Google and Isis, the latter planning to launch a wallet next year. The big retailer also has been approached by PayPal, said a source.

“Every wallet provider comes in chatting with us (saying), ‘we want to partner,’ ” she said. “I have no idea what I can commit to, because I don’t know if I can only accept one or the other, based on what’s going on. I’m really going to hedge my bets in terms of what that investment is going to be until it’s a little more clear how that’s going to play out.”

Of greater concern to Swain is the possibility that wallet providers would use Best Buy transaction and product data for offers they could send to the chain’s competitors.

Data-Sharing Fears
Despite assurances from Google that it would protect the chain’s data, Swain told NFC Times the retailer has “not yet gotten the confidence that we need.” She said the same is true for other wallets­–there is still uncertainty over how well they would protect data.

“There are data models that work in the industry,” she said during her presentation. “We’re not saying it’s unsolvable, but it’s a complicated conversation at this point.”

Google, which already uses personal data on Web-browsing consumers to send target advertising, has insisted that it would protect retailer and consumer data with its Google Wallet. “Any data we get from Best Buy or any of our merchant partners won’t be used to promote other merchants,” a Google spokesman told NFC Times.

Isis, which also plans to push mobile offers as part of its NFC-based wallet, said the mobile carrier joint venture guarantees it won’t share data.

“Merchant data is merchant data, issuer data is issuer data, consumer data is consumer data,” Doug Kilgour, senior business development executive for Isis, told NFC Times. “We’re not in the data business, we’re in the enabling business.”

Sticker Trial: ‘Exponential’ Growth
But despite the concerns, Best Buy’s Swain said the chain has early indications that contactless-mobile payment will boost sales.

She pointed to an unpublicized trial of passive stickers the chain launched a little more than 18 months ago, putting its MasterCard-branded Reward Zone payment card application into thousands of stickers.

The stickers, issued by Best Buys banking partner, HSBC and made by Germany-based Giesecke & Devrient, carried a MasterCard PayPass application, which could be used at all Best Buy stores and thousands of other PayPass locations. The chain ordered 50,000 stickers, but did not issue all of them.

Best Buy sent the stickers to certain customers and also asked for volunteers. Users could attach the stickers to the backs of their phones. The volunteer group tapped the stickers more often than the group that Best Buy sent stickers to unsolicited, Swain said.

“Spend on our cards went up exponentially,” she said of the volunteer group. “The spend went up not only in our stores, but outside, as well.” Spending also increased by the group of users who didn't request the stickers, she added.

Swain noted, however, that mobile wallet providers say they cannot now support private-label cards, like Best Buy’s Reward Zone. That is a problem, since the store cards usually save merchants money on transaction fees and increases loyalty, she said.

This is just another challenge merchants, such as Best Buy, face as they decide whether to support NFC, in addition to the prospect for replacing terminals, controlling their customers data and worrying about standards.

“So the question is, is the NFC investment for payments worth it, and will it really drive and facilitate more mobile payments in our stores?” asked Swain. “We can’t answer that question today. We believe it’s very likely, but we can’t answer that question today.”