London-based bitcoin startup Plutus makes a bold claim. Their smartphone app will allow you to “tap and pay” with bitcoin at any Near-Field Communication (NFC) enabled payment terminal, anywhere on Earth, even if the merchant has never heard of digital currency.
NFC is a technology that allows short-range, secure data transmission between devices, like your smartphone and a merchant’s “tap-and-go” credit card payment terminal. Not every Point-of-sale (POS) terminal is NFC-enabled, but they are catching on.
According to Deloitte, at the start of 2015, there were already millions of NFC-ready payment terminals installed globally, out of the tens of millions of terminals in use around that world.
“Over the course of 2015 that base is likely to see a significant increase, particularly in the US where merchants are replacing their terminals to comply with the EMV mandate, these will most likely to be ones supporting NFC.”
Plutus’ strategy is simple, “don’t try to beat the status quo, start by working with it.” Throughout their documentation and blog, the company reiterates that the way forward for bitcoin adoption is not by replacing today’s means of commerce, but to work within it, and make the whole process as invisible to users and merchants as possible.
“Merchants do not need to directly accept any digital currencies, and customers can convert their balance into fiat on-the-go without any middleman to hold the funds. This process is handled by well-secured smart contracts, rendering it extremely efficient.”
To this end, Plutus claims to have found a way to eliminate a classic dilemma in bitcoin adoption. “Users can’t spend Bitcoin because it is not accepted, and merchants can’t accept Bitcoin because users don’t spend it.”
With their smartphone App set to launch in “early 2016,” the most intriguing thing about Plutus is how the coins get exchanged for the currency that merchants require. The company has created a Decentralized Exchange (DEX) where traders can buy the coins that Plutus users are selling at the time of checkout.
“With Plutus, you can shop anywhere in the world (with NFC) using a virtual credit card and the built-in decentralized exchange network, which confirms transactions using blockchain technology and smart contracts without ever holding user funds, effectively taking the middle man out of the equation. Charge your account, connect with traders on the DEX automatically, and you are ready to shop wherever you like.”
In a similar fashion, the San Francisco-based startup Purse facilitates an aftermarket, which allows users to sell giftcards for bitcoin. Plutus facilitates an aftermarket allowing users to sell their local fiat currencies to bitcoin users.
The major difference between Purse and Plutus is that the former is limited to just a few giftcard-accepting stores, such as Amazon and Starbucks, whereas the latter is available at every NFC-equipped terminal around the planet, currently numbered in the millions.
For merchants to accept NFC payments, first they will need to install compatible POS terminals, and new POS terminals cost several hundred dollars. Therefore, not every merchant who accepts credit cards will be able to automatically accept Plutus shoppers.
Thankfully, NFC-enabled POS terminals do seem to be catching on, especially in Europe and North America.
According to an independent report by Swedish M2M/IoT market research firm, Berg Insight, shipments of NFC-ready POS terminals to merchants is estimated to be 9.5 million units worldwide. The report also stated that 80 percent of all POS terminals shipped in Europe feature NFC, compared to 75 percent in North America.
“While the installed base of NFC-ready POS terminals has grown quickly, many of terminals do still not have the contactless features turned on. Berg Insight estimates that approximately 9.0 million POS terminals accepted contactless payments with Visa payWave, MasterCard PayPass or UnionPay Quickpass at the end of 2014.”
– Berg Insight
Not only is the number of NFC-enabled POS terminals rising, so is the number of NFC-compatible mobile phones. According to a Deloitte report, monthly contactless payment usage via NFC-phones will grow substantially, with both “the volume of NFC-smartphone transactions and the range of spend value to increase steadily over time.”
Deloitte predicts that five percent of the base of 600-650 million NFC-equipped phones will be used at least once a month to make contactless in-store payments at retail outlets, a substantial increase from 0.5 percent during mid-2014. In addition, the firm said that NFC payment is prime for mainstream adoption.
“Deloitte expects that 2015 will be an inflection point for the usage of mobile phones for NFC-enabled in-store payment, as it will be the first year in which the multiple prerequisites for mainstream adoption – satisfying financial institutions, merchants, consumers, technology, vendors and carriers – are sufficiently addressed.”
A major reason so many NFC-equipped handsets are getting shipped is because Applepay requires the technology for it’s iPhones. If Plutus catches on, it’ll be thanks in no small part to Apple’s influence over the payments world.
Ironically, Applepay itself might not be catching on, and investors have been continually disappointed by adoption rates, blaming their 1% pickup rate on bad timing, as NFC has taken longer than expect to roll out to merchants. This may give Plutus lots of room to dominate the format.
“[ApplePay] accounts for only 1% of all retail transactions taking place in the U.S. Reports suggest the payment method has been held back by the limited number of tap-to-pay terminals in stores, with many people still unsure how to use the service.”
Meanwhile, Visa, Mastercard, American Express and Discover all have their own versions of NFC tap-and-go payment programs, such as Visa’s PayWave and MasterCard’s PayPass, so merchant adoption of the POS hardware for NFC will remain strong. By 2020, they could be in the majority of all smartphone and merchant POS devices, giving Plutus users a way to spend bitcoin at the majority of all merchants.
“This was the idea that sparked Plutus – to take advantage of global infrastructure that already exists. Instead of waiting for businesses to accept digital currencies, it’s better to just pay and let them figure out that they have already been accepting them on their own. Plutus merges both blockchain technology and existing international NFC infrastructure to bring contactless Bitcoin payments into the mainstream.”