NFC Technology – A long, dusty road to travel

What is NFC?

NFC (Near Field Communication) is a wireless data transfer technology between two devices that are in a proximity of around 4 cm. NFC is a subset of RFID technology and is based on principles of electro-magnetic field that interact with each other at close distances. NFC was developed by NXP (Phillips) along with Sony. Any activity that calls for proximity of a card/tag and its reader can be made simpler with NFC. Examples include credit card payments, access card authorization & attendance tracking, smart tag reader etc.

NFC is implemented in applications like Google Wallet and ISIS, which are mobile wallet systems. It can also be used for keyless entry systems in offices, metro stations and even cars. Restaurant bills and movie tickets can be paid for at ease with just a tap. This method of communication is popularly called the “tap-and-pay”.

The intuitive interface, versatility, standardization, interoperability and inherent security make the NFC a promising technology.

NFC and telcos:

Telcos get value from two factors: First and foremost, providing a service that meets a customer need and provider value. Secondly, ways to monetize the experience—not by scraping money from the merchants, but by adding value to the ecosystems through relevant loyalty programs, enhanced offers and rewards. Telcos have the potential—not the guarantee, but to influence the buyer at a new and previously unattainable portion of the retail chain, which is when they've got their money in their hand and they're about to commit. A telecom carrier could interrupt a retail transaction with a notification informing the subscriber that a discount retailer sells the same product at a lower price. That discount retailer would, of course, pay the carrier for these interruptions.

The sunny, bright side:

The future of mobile payments is going to be heavily influenced by the near field communications (NFC) technology. Recently retailers have upgraded their POS terminals to support chip-based cards; a logical extension will be the introduction of NFC-based contactless payments support.

Mobile wallet services will be lucrative for telcos that generate new revenue streams by using their positions as intermediaries in retail transactions as a selling point with merchants and advertisers.

The gloomy, dark side:

Criminals are likely to abuse the tap-and-pay NFC technology used in mobile payment programs, or digital wallets. Because of its extreme ease of use, internal data can be leaked easily just by placing phones close to each other. A virus infected device can steal information from every other device that it comes in contact with. These security risks can be mitigated in the enterprise by a combination of tools, policies and training. These polices should be able to give the IT teams access to devices while minimizing liability, prioritizing data security and at the same time recognizing the needs and rights of employees.

Gartner forecasts that NFC will account for only about two percent of total transaction value in 2013 and five percent of the total transaction value in 2017, although growth is expected to increase somewhat from 2016 when the penetration of NFC mobile phones and contactless readers increases. Worldwide, people are not purchasing as much because the buying experience on mobile devices has yet to be optimized, according to Gartner. People are spending less via mobile devices than via online e-commerce services and at retail outlets.

The GSM Association, which also noted it was publishing new specifications for NFC handsets and SIMs, continues to be concerned about big smartphone platform players, such as Google, Blackberry and Microsoft, along with some large handset makers. It fears that these so-called over-the-top players, as well as some device makers, will use embedded secure chips in their NFC phones to store revenue-producing applications–applications that the telcos would like to see running on their services.

The only way for telcos to ward off threats from reduced revenues due to reduced m-commerce applications is to make joint ventures with the mobile wallet developers. These help the telcos to minimize competition from the likes of Google and other new m-commerce players.

Sandhya Vijayan

Class of 2015