Today’s retailers are increasingly looking toward technology to solve their biggest headaches: data security and privacy, fraud reduction, expanded marketing opportunities, and improved cost efficiencies.
One solution that’s been prevalent in Japan and China for many years is now being embraced by some American retailers. It’s called Near-field Communication (NFC), an emerging technology that relies on the touch or wave of a mobile phone that serves as a paperless (and plastic-less) “wallet” to activate purchases. Could this technology possibly be the best payment tool for retailers and consumers alike since the advent of the credit card?
NFC is a variant of RFID, or radio frequency identification, which allows communication and data exchange between two devices held in tight proximity – less than an inch apart.
Some smartphones are already equipped with NFC technology, and more are in development.
(Image, top - reprinted by permission from akaalias via Flickr)
With an NFC enabled phone and an appropriate smartphone app (such as Google Wallet), users send their credit card information to NFC-equipped point of sale payment terminals in retail, food service, transportation and other venues. Users simply open the app on their smartphone, tap or wave it to the NFC reader, and the transaction is complete.
A 2011 white paper by NetWorld Alliance LLC and sponsored by National Service Center enumerated five distinct benefits to retailers who embrace NFC technology. They include faster payment processing, cost reduction, ease of use, expanded and inexpensive advertising opportunity, and security.
(Image, right - courtesy of futurepocket.com)
One section of the white paper cites a 2011 report titled “Mobile Payments in the United States: Mapping Out the Road Ahead,” which was written by representatives from the Federal Reserve Banks in Boston and Atlanta. Their findings suggest that NFC offers security and reduction of fraud as key benefits. The paper states, “Layering of security tools provides security features not currently present in the magnetic-strip environment of a typical credit card where skimming and counterfeit are prevalent. Since proximity is key – cards must be held very close to the NFC reader to function – another layer of security is present.” This increased level of security may well be the most important benefit to retailers and consumers alike.
The report also reinforces the opportunity for environmentally-conscious businesses and consumers to be more “green”, since NFC offers a paperless transaction. Other benefits noted include improved cost efficiencies for merchants and issuers, better data privacy and international compatibility.
There are few barriers to adoption of NFC. Most cell phone users already have the technology via smartphones, and those who don’t can request NFC-enabed credit cards from major carriers such as Visa (PayWave™), MasterCard (PayPass™), American Express (ExpressPay™) and Discover® (NetworkZip™). From the retailer’s perspective, set-up is a one-time, inexpensive investment.
A recent post by nfchandsets.com cited emerging research as a basis for predicting broader acceptance of NFC technology. Their report states, “As companies recover from the economic downturn, many already have begun investing in over-the-air technology, IMS Research predicts that, by accepting new forms of payment, including NFC, mobile payments and contactless cards, companies hope to differentiate themselves from retailers that still are using existing point-of-sale equipment. In addition, IMS says, consumer awareness of the new technology is growing as card vendors and banks begin to issue more contactless cards.”
(Image, left -courtesy of Nissos.net)
Only time will tell if NFC technology will become the mobile payment technology of choice for consumers using mobile phones for retail payment transactions in the United States. All indicators point toward general acceptance, by retailers and especially smartphone owners, that this will be the next technology-based shopping experience.