Near Field Communications (NFC) Payments – The Future of Mobile is Already Here
There is a lot of buzz about NFC or Near Field Communications, a technology that allows transfer of data from smartphones by just tapping or swiping. NFC works on radio frequency, allowing mobile phones to communicate with each other when they are in close proximity. Bluetooth also allows data transfer between devices. However, it requires a manual configuration. On the other hand, smartphones with NFC chips connect with each other by configuring automatically once they are tapped. This presents a convenient payment solution that is being touted as the new wallet.
While NFC seems an exciting new proposition, there are several hurdles that it will have to clear before it becomes an accepted mode of payment.
NFC enabled Mobile Phones
Firstly, smartphones need to be NFC enabled. At present, worldwide, only around 3.5% of smartphones are NFC enabled, but this scenario is expected to change drastically. As per statistics from Yankee Group around 7 million NFC enabled phones were expected to have been shipped worldwide by the end of 2011. This figure is forecasted to grow to 203 million by 2015, and if this does happen, part of the infrastructure required for NFC mobile payments will be in place. In Asian countries such as Japan, China and India, tap and go payments are already popular, signalling that NFC adoption would also be quick.
Efficient payment Mechanisms
The second aspect required for the success of NFC is that online payment systems need to be set up so that customers can use NFC for all their payment transactions from store purchases to parking fees. Several large players in the sector are in the process of setting up these systems and trials are underway. Google Wallet, ISIS, Visa Wallet and American Express’ Serve are already in use, but there are still several issues to be sorted out. For instance, at present, there isn’t a single payment system that is universally accepted. It will take a while before this happens as the required infrastructure will have to be set up worldwide, across stores and other points-of-purchase. The first large scale trial of NFC will take place at the Commonwealth Games 2012.
There are also issues related to security that need to be addressed. Although many people use mobile payments, there is a general concern about its security aspects. Companies will have to put in strong encryption and password authentication protocols, and customers will have to use password locks, anti-virus protection and other security software to prevent unauthorised usage of their NFC enabled device. Once these issues are addressed, NFC payments will take off.
|Points in Favor||Points Against|
|Convenience of tapping mobile to make payments – no need to carry wallets or credit cards||Only 3.5% of smartphones are NFC enabled at present|
|Based on RFID and can be automatically configured compared to Bluetooth, which has to be manually configured||No standardised payment mechanism although there are several players in the market|
|Promising adoption figures, especially in Asian countries||Issues related to mobile security such as unauthorized usage in case of loss of phone or virus attacks, spyware and malware|
What to Expect : Summary
While NFC is being adopted in a small scale, its current potential is just the tip of the iceberg. As per figures from Juniper Research, NFC payments will be launched in around 20 countries by the end of 2012, and forecasts estimate that $50 billion worth of NFC transactions will be carried out by 2014. So clearly, the potential is huge, and once things fall into place, NFC payments will be the new currency, and it will soon be time to bid farewell to your wallets and credit cards.
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