The A to Z of NFC for Payments

When NFC (Near Field Communication) was first introduced some hailed it as a revolution, while others joked that it was the “betamax of payments”. There may be a spectrum of opinions, but while NFC is only a component for various products, it’s technology that’s here to stay.


What is NFC technology?

NFC is technology that uses a chip to enable two devices, when placed in close proximity (centimeters) of each other, to exchange data.

Using NFC, enabled debit cards, credit cards, and mobile devices talk to NFC equipped terminals, exchanging encrypted data through the secure process of tokenization.  This process only allows the parties involved to access the sensitive payment information, with no data ever being stored on the terminal itself.

What is the real value of NFC?

NFC is being adopted as a common method of payment. Merchants can now accept MasterCard PayPass, Visa PayWave, Apple Pay and more using NFC terminals.

Merchants can place an NFC terminal on their counter alongside their POS (point of sale) setup. Consumers then use an NFC-enabled device to tap and pay instantly for purchases under $50, now referred to as “Tap and Go”.

Time spent at a POS is reduced by 30 to 40% with NFC payments. An American Express study found NFC payments to be 63% faster than cash and 53% faster than using a standard credit card. It is pretty obvious that adopting NFC is an advantage to merchants everywhere.

With Apple’s announcement of the iPhone 6’s ability to process NFC payments, analysts are debating on whether the mainstream market is now ready to adopt NFC payments in the day to day. Over 200,000 merchants in North America will be set up to accept NFC payments in the near future; clearly the NFC train is not slowing down anytime soon.

But what does that mean for mobile payments?

We already explained that NFC works very well, at least for high traffic merchants where lineups occur during small transactions. For mobile payments, however, the ability to pay or get paid on a mobile device, regardless of NFC, is the future.

For merchants, mobile payments decrease operational costs because the cost of setup is low compared to the traditional alternative. Long line ups are known to be detrimental to sales, but NFC-enabled mobile payments reduce friction, so that wait times at the register become insignificant.

For now, NFC payments at a POS is cost-effective and easily accessible, making the option to accept NFC payments the best route for merchants at the moment.

Is there an NFC competitor?

We are glad you asked. Bluetooth LE or Bluetooth Low Energy is a current technology that competes directly with NFC.

Bluetooth LE possess a longer signal range in terms of physical distance, but requires more power. With battery life already an issue with mobile phones, it is important to have a practical solution if the mainstream is to adopt mobile payments.

NFC is also faster when it comes the initial exchange of information. Bluetooth needs to go through a pairing process that creates too much friction for the customer and merchant.

And finally, NFC chips cost drastically much less to produce and purchase.

Okay, we’ve covered the basics, but what about security?

When it comes to skeptics, their first target is, of course, security. These days it seems hackers are finding a way to get anyone’s information. It is every organization’s duty to make sure their products or services are as secure as possible, and meet the standards of the customer when it comes to financial security.

For NFC payments on mobile phones, most devices have the technology built right into the SIM card of the phone, along with security codes or biometrics as a second layer of security validation (think Apple’s Touch ID). In Apple’s iPhone 6, a one-time use token is generated every time a payment is made rather than giving the user’s card information.

Security will continue to be the priority of mobile payments and with each year that passes, it will overcome new challenges that will make security measures stronger, making NFC payments safer to use.

So, where do we go from here?

We hope that we have answered most of your questions about NFC and mobile payments. As a organization in the payments industry, evolving technology is exciting because it allows us to provide merchants with the best possible solutions to give the customers a great point of sale experience and get paid.

NFC is the next big thing, and we will keep you updated on its development as things unfold.