In the last few years, analysts and reporters have repeatedly declared NFC dead, while technology providers struggled to make it work. But there are some major players that are clearly not ready to give up on it, and that’s a good thing. NFC is a great technology with the potential to play a big role in mainstream mobile payments adoption.
So let’s take a step back. What is NFC? It stands for near field communication, and it is a way for smartphones and other devices to wirelessly communicate with each other using radio waves over short distances. They can be used to pay for a latté, authenticate a visitor’s ID or set up a WiFi network, to give a few examples. The technology behind NFC was first patented in 1983, and in recent years the technology has been refined, particularly for use in smartphones, but also for purposes that include transit, hospitality, recreation and beyond.
So why does everyone think NFC in mobile payments is dead? For one thing, it’s a complex market, with many stakeholders who must be brought into the fold, including: hardware manufacturers, telecom providers, app developers, financial institutions and even card issuers -- not to mention the end users, merchants and consumers. One major struggle has come in the form of carriers, whose buy-in is required because they own the SIM card. While the secure element on a credit card resides in the magnetic stripe or chip, telecommunications companies want to charge banks to store this secure element on phones’ carrier-owned SIM cards.
To this end, ISIS is a joint venture formed by AT&T, Verizon and T-Mobile in an effort to bring NFC-based payments to the market on their own terms. ISIS’ mobile payments solution leverages NFC technology via carrier-owned chips and, with partnerships secured with several card brands, they are poised to make a splash. In fact, because of the creation of ISIS by these major carriers, other mobile payments solutions that looked to NFC-based payments have been inherently precluded from getting in the game.
However, in a game-changing reversal, Google Wallet recently announced a work-around for the secure carrier-controlled elements: host card emulation (HCE). This means Google Wallet can now enable NFC-based payments without the permission of big manufacturers or carriers. With HCE, they will be able use their own Android platform to provide customers with direct access to the benefits of NFC.
In some ways, it would appear that Google’s latest move is a direct affront to ISIS. Certainly it will be interesting to see how the competitive landscape plays out, especially with other giants in the field -- like PayPal -- declaring NFC a great technology and happily jumping on board. And though Apple is currently implementing iBeacon, its bluetooth answer to NFC, Android phones still have a majority of the market. So if consumers and merchants begin to adopt NFC en masse, it’s entirely possible that Apple will also come aboard.
The bottom line is that NFC is far from dead.
And NFC is being used for much more than just payments. Applications are being built that take it beyond purely payments and into the realm of loyalty, rewards and omni-channel marketing with apps like FidBook, Sticky Me and FlockTag. Other examples of NFC applications range from health tracking to ticketing to security.This means that NFC is much more than just a replacement for the consumer’s credit card; it’s a superior way for consumers to interact with merchants as a result of its built-in two-way communication. In the end, both consumers and merchants will benefit from the ease of use, security and complex data that are all promised by NFC.
NFC has a lot going for it: the technology still has more acceptance points than any other mobile payments option. It also runs on the existing credit card “rails,” meaning no new infrastructure has to be built in order to take NFC mainstream. That makes it a relatively low-friction technology that simply requires customers to bring their smartphones and merchants to use NFC-compatible point of sale systems.
NFC is far from dead. In fact, while this is not a winner-take-all scenario, it’s still bleeding-edge technology that we would all do well to get on board with. Banks, technology developers, merchants and consumers alike should pay careful attention to NFC and the opportunities it presents for the future of commerce. Thankfully, it’s not going anywhere anytime soon.
Looking for more info on the state of the payments industry today? Check out our most recent report.