Fishburn Hedges

29.11.2011

Cash is dead. Use your credit cards as ornaments. The payments industry is in the midst of a revolution. According to one recent report, within three years, traditional cash and card payments will give way to digital transactions - with the most likely winner being a technology called Near Field Communication.

NFC is a two-way communication specification based on radio frequency which allows close range communication between one enabled device/terminal and another. NFC can be used as a channel to "pair", "share" or "transact" - which means it can be integrated into a smartphone which then can be your wallet.                                                                   

NFC debit cards, already widely available, are one way to ensure wide distribution of the technology. However, they are quite basic when you think of what NFC can do. When paying with a phone you could not only make a financial transaction but receive information digitally in return. This opens up the payments process to a two way conversation and a new way for payments companies and merchants to engage with their customer base.

What does NFC bring?

So in light of this what exactly can NFC in your smartphone bring to the market and why do many see it as the future?

Expansion of Capability

Firstly, NFC can greatly expand a phone’s capability and make it even more essential that you take it with you. In addition to being a payments mechanism, NFC can be utilised to turn your phone into a keycard giving you access to your workplace, car or even house; as an e-ticket device storing rail and Oyster cards, airline tickets, concert tickets and coupons; a briefcase allowing business cards or sensitive documents to be easily transferred by ‘bumping’ two devices together; and as a social networking tool allowing you to again ‘bump’ a device together to become someone’s friend, join a multiplayer mobile game or even transfer money. Just don’t lose it!

Convenience

Secondly, NFC gives the consumer more control over their payments. NFC on a smartphone is a quicker form of payment compared to standard chip and pin. One essential feature that separates it to contactless cards is the fact you easily have the ability - with the right API - to manage multiple cards or accounts all on screen before you pay. A recent announcement by Intel also sees NFC payment being used on netbooks and PCs, allowing an NFC reader to be connected so you can use your mobile phone to quickly ‘checkout’ online. Undoubtedly, this could extend to online banking access, replacing the likes of a card reader. This, coupled with the other uses of NFC, makes the service extremely portable and convenient.

Sustainability

Thirdly, NFC is self-sustainable. Your phone does not need to have battery for it to work. In fact some recent developments in the technology have meant it could actually act as a power source, harvesting energy captured from NFC readers/writers, eliminating the need for a battery in some small devices.

Targeted Marketing

Finally, NFC has marketing potential. It can act as a vital communications system between the consumer and the merchant, opening up a new opportunity for brands to target consumers and for consumers to receive a more personalised offer or incentive. So the payment platform will supply new marketing opportunities and a way for consumers to engage more heavily with brands.

NFC will also allow a greater connection between our existing digital environment and physical everyday actions. It will enhance our online experience by using the data received from purchases, or other interaction, to craft a more personalised shopping experience and better brand integration.

For example, imagine that you used an API (an application to you and me) such as Google Wallet to pay for the latest Call of Duty game. This is then registered on your Google account which in turn added you to the COD brand page on Google +. Google then fed this information into your browsing experience adding not just the ‘friend layer’ to your browser but a ‘purchase trend layer’ to this as well. On top of this, Google Offers could use this data to then send you a voucher for 10% off your next game or electronic accessory purchase. Taking this further, the data could then be used by gaming platforms such as Steam or the Playstation Network. It could be used to unlock special features, identify the best servers in your area, or even create merchant sponsored leagues tables - so whoever bought the game from a 'HMV' outlet could compete to be the HMV player of the year. 

Drawbacks

Of course, this is not to say NFC does not have drawbacks and unanswered questions. Security is a major concern, as with your smartphone acting as an integrated platform for everything from credit cards to house keys, the risk of being hacked and the potential scale of loss occurring from this is huge. Therefore developments in mobile security are key.

Issues around cost and standardisation are of course also relevant, however as more handset providers, telecoms companies and banks get onboard with NFC, solutions will be provided. In fact rumours of Apple announcing their entrance into this area suggests a standard format for NFC is strongly emerging. The bigger question in relation to this is consumer confidence in NFC. This means not only dealing with the psychology of using your phone for previously separate, physical actions, but supplying strong reasons for consumers to switch to mobile. Although, some may argue once NFC appears in more phones and shops, confidence will increase naturally.

Physical to Digital

If NFC is developed in the right way and consumers not only begin to feel comfortable with using their mobile to pair, share and transact, but can see the added benefit of doing so, then Juniper Research may be right in their prediction that 1 in 5 smartphones will have NFC by 2014. If this becomes reality then the divide between the physical and the digital could become blurred even further.

Posted by James Lusher

See our ‘What’s next for money and payments?’ event summary for more information.