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Near Field Communications and Mobile Payments

Is NFC Ready to Become the Next Payments Standard?


Near Field Communications and Mobile Payments

Image © Google

What is NFC?

Mobile payments is a subject that has remained at the foreground of many technology discussions, and one tool often mentioned as part of these discussions is near field communications (NFC). NFC is not a new technology, in fact it is an offshoot of the well-used RFID standard. It allows communication between a powered device and a passive device through the air over short distances (roughly 4 centimeters). While NFC can be used in many ways, its primary discussed application has been in implementing touch-less payment systems, particularly in mobile devices.

Many Big Players are Implementing NFC

Many of the major players in the world of both mobile devices and payment services are experimenting with NFC. Many of the major credit card companies have created NFC options, Visa has a technology called PayWave, and Mastercard has a competing technology called PayPass. Both technologies have been around for a number of years, but adoption in North America has been slow. These NFC options have been more successful overseas however, particular in busy metropolitan areas in Asia, like Hong Kong.

Notably of late, Google has been the highest profile technology company to enter the NFC ring, with NFC being the central technology behind their Google Wallet initiative. Google has licensed both Mastercard Paypass and Visa Paywave, making the Google wallet system already compatible with many vendors. However, adoption on mobile platforms has been relatively slower. Google wallet is only available on a few Android phone models, and then only with a subset of specific carriers for each phone. Despite this, support over time from a giant like Google may be the catalyst needed to drive widespread adoption.

A Solution in Search of a Problem

A major question behind many contact-less payment systems like NFC is whether they really offer enough added value to justify the upgrade costs. For stand alone NFC payment solutions, was the process of swiping a magnetic stripe really arduous and time-consuming enough to justify implementing NFC? For many vendors in North America, the answer is a resounding "no". However the question is a little more complex overseas; cities like Hong Kong have benefitted greatly from touch-less payment, which allows crowded lines within transit systems to flow far quicker, for example.

NFC's value proposition becomes far more appealing when you combine it with the functionality of today's smartphones. A payment system that is combined with an app that can track your purchases and spending, present special offers, and store your preferences and shopping list has the potential to be a worthwhile value for both vendors and consumers -- this is the aim of Google Wallet. Despite this, NFC is still subject to a "chicken and egg" problem. Vendors are hesitant to adopt NFC until there is a critical mass of consumers using it. Consumers similarly are wary of adopting an unpopular technology for an important function like payments.

Alternatives to NFC

Another barrier to NFC adoption is that there are other protocols, namely WiFi, that are cheaper and more accessible, and may usurp the entire NFC proposition. Square, a rising player, is betting on WiFi being the payment protocol of the future. The Pay with Square service allows users to connect automatically to a vendor's WiFi system, and simply provide their name at the register to pay. Given that most smartphones already have WiFi functionality, and WiFi is also far more prevalent and affordable amongst vendors, it appears poised to be a legitimate threat to NFC adoption.

Not for Commerce?

NFC as a technology has existed for some time, and its potential in payments has been the source of much hype, but as yet, no major sea-change in the world of payments has happened. This has led to industry executives like eBay's John Donahoe to label NFC "Not for Commerce." While it may not quite be time to completely abandon NFC given the big players, notably Google, still investing in it, there seems to be many real and significant barriers to it becoming the payment technology of the future.

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