What is NFC, and Will It Really Take Off?

Near field communication, or NFC, allows for simplified transactions, data exchange, and wireless connections between two devices in close proximity to each other, usually by no more than a few centimeters. NFC has three uses:

  1. Connect electronic devices
  2. Access digital content
  3. Contactless transactions

NFC has been available with MasterCard Paypass for years. NFC can be used for mobile phone payments, in conjunction with an electronic wallet. Google launched it’s Google Wallet in early 2011. There are significant limitations at this time, however, Google developed the operating system for the Android smart phones and recently also purchased Motorola Mobility Holdings Inc. for $12.5B. With that heavy investment, plus Visa and MasterCard’s push, we can expect some adoption of the technology.

Will NFC become the US standard for mobile payments? I have my doubts. Visa announced incentives for merchants to offer NFC in August 2011.  I predict that there will be heavy penetration in US market for chip-enabled credit cards but that chip enabled mobile payments may remain elusive as the leading mobile solution. SMS can be used with any cell phone and wouldn’t it be better to reach everyone, rather than the minority few worldwide that have the ‘right’ device? Plus, at this point, there is not even consensus on NFC standards. With Google controlling manufacturing, we can expect they will exert some control over future standards.

  • Merchants will need to buy or update equipment. Most units retail for over $700 per unit, excluding a receipt printer.  Major department stores may have the capability, but most other businesses do not.
  • Merchants need to interface with technology to process the transactions. For example, CenPOS.
  • Consumer needs to have an NFC device. Smart phones only account for 1 in 4 mobile phones as of 2011. NFC capable smart phones is a tiny fragment, with the first units just being tested mid-year 2011.
  • Japan is arguably the most advanced cell phone market on earth, yet NFC is not widely used. Instead SMS is king.

Is NFC secure? This is an age old argument. NFC is not new technology but then again,  the US infrastructure for payment processing has had little to no innovation in the last three to four decades. Personally, I’m not trusting NFC with my cell phone.

Is NFC good for merchants? Yes. Merchants may benefit in the future if interchange is adjusted lower to reflect the purported lower risk associated with EMV chip credit and debit cards. Additionally, Visa is waving PCI DSS, however, MasterCard and American Express have not offered the incentive.

 

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Credit Cards to become obsolete? by CBS News
NFC (Near Field Communications) – Was this near sighted?, by Oracle

Approved Contactless EMV reader Products, by EMVco, which is owned by American Express, Visa, JCB, MasterCard et al to maintain global standards.