Is NFC Really the Future of Payments?

Google Wallet was released for Android this week. The vision is to aggregate all your payment methods – making up the third generation of payments, according to Google, after coins and paper – into a single app that can be applied to real life commerce. As they put it: “Make your phone your wallet.”

This is achieved through near-field communications, a Bluetooth-like technology that can perform an unpaired data transfer with something in the general vicinity (generally around 4cm away). The term is generally used to refer to a method of commerce between untethered devices. Let’s find out more about it.

What Is NFC?

As mentioned, Near Field Communications (NFC), is a short-term, near-field communication between two devices that allows them to exchange data without requiring a complex pairing operation. The data can be anything from coupons, to tickets, to boarding passes at an airport, to card details.

This type of contactless payment has been around for a while – but just outside of phones: some payment cards have been fitted with a contactless payment chip in order to swipe through the air, rather than through a machine. (In fact, if you live in the UK, you can even use these to pay with at your local McDonalds.) It’s not a huge advantage, since you still need to carry around the physical card.

In tech demos, NFC looks incredibly cool. In the video below, Google Wallet is used to pay at a vending machine without trying to find the correct change in your pocket. Imagine just going up, swiping your phone and instantly being served a drink.

A World of NFC Is the Future

When NFC is mentioned in the media, it is generally associated with commerce in real life within a retail environment. However, NFC has a much wider potential than that.

I recently wrote about an optimistic vision wherein Android forgets consumer tablets and focuses on markets in need of a technology upgrade, like museum kiosks and fridges. In a similar category is the vision of a world where NFC is as ubiquitous as debit and credit cards and in which every retailer uses the system. Oh sure, there’ll always be those places that deny the use of a specific method of payment (however common), but generally most retailers would use NFC.

This scenario would provide a much more efficient means of payment, handling multiple methods in a single app that can be used everywhere. Imagine going to your supermarket and buying your groceries with your phone, or boarding a train with a swipe of said device, or even attending a party in which you simply swipe phones to exchange contact information.

NFC’s growth is inevitable, but really requires the critical mass in order to become popular.

It’s Going to Take a While

For NFC, three main critical masses need to be reached in order for the technology to be successful (and ubiquitous) and they all rely on each other to grow, meaning it’s going to be a slow but inevitable journey to dominance.

Firstly, the users need to adopt the idea of storing payment information in the cloud and using it in retail environments. This, of course, introduces security concerns for some, but it is a necessity in order to advance NFC. If users adopt it, both handset makers and retail outlets will start to realise its potential.

Secondly, retail outlets need to jump on board. To an extent, some are already doing this via PayPal, especially in the pizza market where both Pizza Express and Domino’s Pizza accept PayPal as a valid form of payment. In the former, you can even pay for a meal you just ate in one of their restaurants by typing the code on your bill into their app, and then logging into PayPal. However, it’s really no good if only a select number of stores offer this payment method because you’ll still need to carry cash or cards as a habit. Only when nearly every store offers NFC payments (through a single service) will NFC be classed as successful.

Finally, the handset makers need to take NFC on board. Without the necessary components, NFC physically can’t work. As much as I don’t want to say this on an Android blog, Apple has the biggest influence here because, should an NFC chip make its way into an iPhone, the technology could be in millions of customers’ hands within weeks. The obstacle here is if Apple introduces a rival service. I do love the idea of paying via proxy of iTunes (including using iTunes credit), but unless Android takes that service on board (providing Apple offer it), this isn’t going to work. Not only do most retailers need to accept a service, but phones need to universally work with it, too.

Final Thoughts

NFC does have security concerns, which, unfortunately, might hinder its popularity. If your phone holds sensitive data, there’s always a chance that it, or the service operating on it, could be hacked. Plus, the pure mass of services that could be available (car door unlocking, payment info, potentially expensive items like transport tickets, etc.) means that, should your phone get stolen or your password revealed, you’ll lose a lot.

Nonetheless, NFC is the clear fourth-generation of payments after coins, paper and cards. It’s just going to take a while, a mass of retailer adoption and a truce between Google, Apple and Microsoft in order to push the advancement forward.

Would you use NFC? (I certainly would!) Does your phone already have an NFC chip? Have you ever bought anything with a contactless payment system? Hit us up in the comments!

 

 

Connor Turnbull on September 22nd 2011