Will NFC Dominate Mobile Payments?

By Mark Roberti

As banks, credit-card companies, smartphone manufacturers and others vie for dominance, much of the buzz surrounds a form of radio frequency identification known as Near Field Communication.


Last week, Google announced that it plans to offer a mobile-payment system in cooperation with Citibank, MasterCard, First Data and Sprint. The Google Wallet will let owners of cell phones operating Google’s Android operating system, and equipped with Near-Field Communication (NFC) technology, pay for goods with a tap of their phone at a point-of-sale (POS) terminal (see RFID News Roundup: Google Unveils NFC-based Mobile-Payments Service). This puts NFC, a short-range form of radio frequency identification, at the forefront of mobile payments. Can it stay there?

The Google Wallet will initially support two types of payments: a PayPass-eligible Citi MasterCard and a virtual Google Prepaid card. If you already have a PayPass-eligible Citi MasterCard, you can add it to Google Wallet, using First Data’s Trusted Service Manager service. Or, you can fund the Google Prepaid card with any payment card. (NXP Semiconductors provides the NFC solution for the Google Wallet, and played an important role in creating the application with Google.)

Google’s system will initially be available on Samsung‘s new Nexus S smartphone, which comes with a built-in NFC reader. NFC technology enables the phone to both read tags and emulate a tag, so it can be used to store credit-card information and transmit it to an NFC POS device. Citibank will issue a MasterCard that can be used with the system, which will also include a prepaid MasterCard, so you can load up the phone with money and then go on a shopping spree.

RFID has been gaining traction in the world of financial transactions for the past few years. Millions of credit cards now come with an embedded high-frequency (HF) RFID transponder, using the ISO 14443 air-interface protocol, which limits the read range to a few inches in order to prevent eavesdropping on the data transmission. But many experts believe NFC-equipped phones could make credit cards obsolete. Why have to fumble for your wallet, pull out a credit card and swipe or tap it, when you can simply wave your cell phone—which most of us have handy at all times?

In addition to convenience, NFC-enabled phones, unlike magstripe credit cards, can be password-protected. If you lose your credit card, anyone who picks it up can use it by simply forging your signature. Many phones, however, have a password, and the Google Wallet will require an application-specific password, which will prevent someone else from utilizing your NFC phone to purchase goods.

There are some obstacles to be overcome, of course, and there are some technologies that might challenge NFC in the mobile-payments space. One obstacle is that for NFC phones to work as a payment tool, merchants will need to upgrade their POS readers. American Eagle Outfitters, Macy’s and Subway have agreed to do so in New York and San Francisco, so consumers with Nexus S phones will be able to use those phones to pay for purchases in those cities. But NFC faces the age-old chicken-and-egg problem: Phone manufacturers might not want to put NFC chips in their phones until more POS terminals can handle NFC payments, and retailers might not want to spend the money to upgrade POS devices until there are more phones with NFC capabilities in consumers’ hands.

NFC might also face challenges from one or more biometric technologies. A story appeared in The New York Times last week about a company called Square, which is offering a system enabling shoppers to pay by simply stating their name (see Square Will Let Shoppers Say Their Names to Pay). You must register with a merchant and provide your credit card in advance, but when you walk into a store that supports the Square application, you can just pay by stating your name.

The downside, of course, is that the service is limited to participating stores. But the concept got me thinking that voice recognition has become good enough that it might be possible, sometime in the near future, to register you voice with MasterCard or Visa, and then, instead of waving your phone, pay by simply stating your name, your address and the amount of your purchase. A microphone at the point of sale would capture that information and transmit it to a central software system that would check it against your voiceprint on file. The system could even be coupled with a camera that would take a photo of you and forward that image to a server for a facial-recognition check.

That might seem farfetched, but a few supermarkets are employing fingerprint-recognition systems for payments, though they haven’t yet caught on as a payment tool. Computing power and network speeds are making new technologies viable every day. It’s great to see NFC catching on as a payment device. But which technology ultimately wins out will depend on what customers are comfortable with, and what is most convenient. People have shown they like using their cell phones for many different tasks, so I wouldn’t be surprised if we are paying with them before too long.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog, the Editor’s Note archive or RFID Connect.