The advent of contactless payment technology in mobile handsets ushers in big possibilities for credit-card companies, network operators, and handset and chip vendors-if all parties can agree on an equitable business model.
For consumers, new technologies such as near field communication, or NFC, offer the double-edged allure of convenience in shelling out money, though NFC applications at first are likely to target convenience that far outweighs the danger of over-spending. Actions typically done in a rush that lend themselves to NFC applications include paying for public transit or concessions at the local sports arena, but the technology has a vast array of potential uses.
The use of NFC looks to further a number of trends in wireless, including the promotion of mobile handsets as the single most-important item-perhaps a close second to clothing-to take when leaving the house, making consumer spending more convenient and advancing e-commerce and location-based services. It also brings together carriers and financial institutions, a match made in someone’s heaven.
Right now, the first commercial deployment of NFC is in Hanau, Germany, where beginning in April Vodafone Group plc partnered with Nokia Corp. using the latter’s 3220 handset to enable users to pay for bus service. This year will see 30 major trials worldwide, including two in the United States that have yet to be publicly announced. The first major trial in the United States took place in late 2005 in Atlanta. There, Philips Electronics partnered with Cingular Wireless L.L.C., Visa USA, Chase Bank and Nokia’s 3220 at the Philips Arena, where 150 season-ticket holders used NFC-enabled phones to make purchases at concession stands and shops, and to read posters to get information on their local teams. (Other handsets on the horizon, in unrelated trials, include Samsung Electronics Co. Ltd.’s D500 and X700n.)
The technology, pioneered by Philips Semiconductor and Sony Corp., has attracted a pantheon of major players that suggests that many consider NFC a fruitful technology option, though it may face rivalry from other limited-distance technologies such as Bluetooth, Wi-Fi, ZigBee, infrared, radio frequency identification and contactless smart cards.
“The NFC space is pretty busy,” said Stuart Carlaw, principal analyst with ABI Research. “We’re in the trial stage and momentum seems to be building. But a number of issues need to be addressed. One is standardization on implementation. The issue is not so much the technology as it is understanding the business case. You’ve got carriers controlling the interface with the consumer and they’re not used to involvement in the financial transactions market, due to the risks involved as well as putting in place the supporting infrastructure. And the players will need to align their business partnerships. My feeling on commercialization is that it could occur late this year or perhaps next year.”
ABI projects that more than half of all handsets sold in the next three years will contain NFC capabilities.
Certainly the major players exploring NFC speak to its potential; they include the leading handset vendors (Nokia, Motorola Inc., Samsung, Sony Ericsson Communications L.P.), chip makers (Texas Instruments Inc., Renesas Technology, INSIDE Contactless), carriers (Cingular, Sprint Nextel Corp.) and various behemoths from the computing and financial worlds, including Microsoft Corp., Hewlett-Packard Co., Visa and MasterCard.
Philips Semiconductor is positively giddy over the prospects; it considers the technology a major growth area.
Philips and Sony pioneered NFC in 2002 and, with Nokia, formed the NFC Forum in 2004. Today the forum has more than 80 members and commercialization of the technology appears imminent.
“We’ve gotten a lot of momentum in a very short amount of time,” said David Holmes, a business development manager for NFC at Philips Semiconductor. “The fact that we invented the technology and nurtured it has given us a pretty big competitive advantage, especially in time-to-market. Our products have been fully released to mass production and have been field-tested for the past couple years.”
As Holmes explained the technology, when a handset is placed within four inches of an RFID card, the handset activates the NFC function in the card via a magnetic field. That powers the connection and data then is transferred via an ISO14443 standard, which is a 13.56 megahertz RF technology, with a data exchange rate of 424 kilobits per second. The same mechanism holds true for two NFC-enabled handsets placed within four inches of each other; applications include contactless exchange of e-business cards.
“There are literally thousands of applications,” Holmes said, “but there are three main categories: secure transactions, service discovery and peer-to-peer.” Secure transactions include paying for tickets, service discovery means reading RFID tags that offer products or information, while peer-to-peer use of NFC can mean exchanging documents such as business cards.
Security is the obvious challenge, according to Holmes, and though NFC contains security features, it is being coupled with smartcard-style security chips.
“From a technology standpoint, the security is robust,” Holmes said. “It’s the perception that we’ll have to address to promote adoption.”
Holmes suggested that with a lost or stolen wallet, the consumer must make multiple calls to alert various credit-card companies; with a lost phone, one would simply call the carrier and lock it up.
