What's Next for NFC

By Jeff Goldman

November 01, 2004

Wireless isn't all Wi-Fi: according to a new report, Near Field Communications tech could give it a run for its money -- especially in the worlds of RFID and contactless payment transactions.

According to a recent study from ABI Research entitled simply "Near Field Communications (NFC)," contactless payments are one step closer to showing up at your neighborhood store.

Erik Michielsen, ABI's director of RFID and ubiquitous technologies, says the final pieces are being put in place for NFC technology to enable contactless point of sale transactions. The best way to look at NFC, Michielsen says, is as a step forward in radio frequency identification (RFID) technology.

"NFC is RFID," he says. "The chips used in cellular handsets for NFC technology act as both a transponder and a reader. It can be accessed from a reader, like a point of sale terminal – and then the phone itself can also act as a reader and access smart objects like smart posters or smart advertising."

While point of sale transactions are the most likely first step for NFC technology, it can also be used for transmitting content. "Chips will be embedded into posters that might have an advertisement for a concert," Michielsen says. "You can access the information through the reader on your phone from up to 20 centimeters away and get routed to a Web site, or to a point where you can make a purchase."

One of the first and most prominent examples of contactless payment systems is Sony's FeliCa Card, which is currently in use in Japan for public transportation. The next step, Michielsen says, is to use the technology in open-loop systems, like those for credit card payments, which work with multiple merchants and vendors.

Key to the implementation of NFC on a broad scale, Michielsen says, was the recent announcement of a partnership between Philips and ViVOtech to make use of Philips' NFC-based contactless payment solutions in ViVOtech's point of sale devices.

A crucial selling point of ViVOtech's system, Michielsen says, is the fact that it's not disruptive to legacy solutions. "It just plugs right into your existing point of sale system, so there's not a whole lot of integration necessary," he says. "It's pretty easy, it's seamless — and that has to be the case with these applications."

Before solutions like these can be implemented on a larger scale, though, a wide range of participants needs to get involved (and invested) in the technology.

"There are multiple stakeholders in the NFC value chain, whether you're talking about the consumer, the retailer, the bank, the payment processing company, the cellular handset manufacturer, or the cellular operator," Michielsen says.

Michielsen says trials have already been run that establish the potential for NFC technology to increase throughput, customer satisfaction, and even average transaction size. "Right now, what you need to do is align and coordinate all the groups so that everyone can put together a better understanding of what this technology can do for the market," he says.

The good news is that it should be relatively easy to persuade consumers to buy new handsets that incorporate the technology. "People are always replacing their cell phones as phones become cooler and stronger and faster," he says.

As a central tool for contactless payments, he adds, the cell phone is an ideal choice. "You're always carrying your phone with you, and contactless payment eliminates handing over your card," Michielsen says. "It's easier, it can all be managed through a GSM or CDMA based cellular network, it's 24/7, and it provides encryption security."

Still, NFC isn't necessarily the only option out there – Michielsen points out that some companies, like France's INSIDE Contactless, are exploring different ways of handling contactless payments.

In the larger picture, Michielsen says, the point is that RFID is finally making its way from business to consumer markets. "It's really a transitory step from RFID as a consumer goods / defense / homeland security component, moving into m-commerce and point of sale through contactless payments and contactless data-driven transactions," he says.

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