Explainer: Near Field Communication

What Is It: The idea of being able to wave your cell phone at the Starbucks cash register to pay for your drink has been something talked about for ages. You’ll regularly hear speakers at conferences talk about how people in Asia can buy Cokes out of vending machines with little more than their cell phones. The technology that allows that to happen is called Near Field Communication. It’s an evolution of Radio Frequency Identification, which MasterCard and Visa have both put into effect with their touchless payment systems. The problem with RFID is it requires a unique tag or fob for communication. With smartphones on the rise, the biggest names in mobile, both platform and carrier, are pushing NFC to empower your single device to completely replace your credit card, ID, and even tickets.

Why It Matters: NFC could in theory lead to an explosion of mobile commerce, not just for Cokes out of vending machines. With NFC, your cell phone would be able to send and receive information based on proximity. Placing your device within 4cm of the object to interact with would prompt the desired action if you had previously authorized it. While many focus on just allowing you to pay for purchases, you can also receive additional information from an advertisement, share your personal information (between other devices or with a merchant), and even initiate another form of connection such as Bluetooth or WiFi for more secure and faster data transfer. And let’s not forget the merchants themselves. In an age where your customer information is the most valuable, NFC could allow them to further contact and collect information that would normally require the customer to fill out a contact card, without them having to do anything more than pay for their transaction.

Who’s Doing It: It might not surprise you one of the biggest NFC backers is Google. It built NFC capabilities into its Android operating system. Verifone, responsible for a fifth the world’s market share in electronic credit card readers, is adding NFC technology to the newest wave of readers that they’re sending out to merchants. Isis Mobile Commerce (http://www.paywithisis.com/), created by AT&T, Verizon, and T-Mobile, is building what they call their Virtual Wallet Standard for NFC equipped mobile devices.

Assessment: Despite the gee-whiz factor, this technology still has a ways to go, especially with the barriers that it faces. Dealing with security concerns is the biggest hurdle. What happens when you realize you lost your phone and you don’t know exactly when? Consumers might not be ready to pay with their phones. After all, it really wasn’t that long ago, in the grand scheme of things, that people were asked to use their credit cards online — a step many initially balked at taking. Fragmentation is another problem. Payment systems are complex: each NFC receiver, mobile app, and even platform could require one app per form of payment or merchant. That will slow adoption. Apple is the big wild card. The increasing size of its iTunes customer base with credit cards on file makes it a payments Goliath waiting to happen. An NFC-enabled iPhone would allow Apple to take a similar stake as credit card and other online payment services do as a transaction fee, for the merchant to have access to their user base. If anyone can make NFC cool to the masses, its Steve Jobs. It would be very unlikely for anyone but Apple to have the consumers information and all the data that comes along with each transaction. That’s a lot of power for one company to have and a near guarantee that fragmentation would occur, as Apple clearly doesn’t play well with others.