Near Field Communications (NFC) technology involves short-range wireless data exchange between a POS terminal [reader] and a chipset [transmitter] contained in a mobile device. Up until recently, contactless payments were limited to card-based payment interfaces involving a sophisticated card reader, antenna, and embedded chipset already contained in many existing credit/debit cards. Historically, the consumer needed to swipe a payment card through a magnetic stripe reader so that the radio frequency identification (RFID) technology would initiate the transaction through physical contact. Once the RFID data was captured, the reader had to be interfaced to a payment mechanism for the transaction to progress toward settlement. Newer contactless formats of the payment media (card or fob) merely need to be in close proximity of the reader for the necessary exchange of data to take place. In other words, waving a card within a few inches of an RFID contactless reader was sufficient to complete the data exchange. With NFC technology, the housing device (mobile phone) acts as an electronic wallet (e-wallet) and is responsible for completing the settlement function. By comparison with legacy RFID applications, the Google Wallet offers a higher level of security as the consumer’s mobile device screen must be powered to initiate (send or receive) transactional data and each transaction requires the consumer to enter his/her PIN number for authorization.
The novelty of Google Wallet is that it allows users to “store” multiple credit card numbers securely in a mobile smartphone. The chip inside the phone can emulate multiple credit/debit cards that can be selected using the application in mobile payment device. Currently there is only one phone to support the Google Wallet and it is the Sprint Nexus S 4G, though other Android phones are certain to follow. In addition, Apple and Google may or may not cooperate to enable this technology in Apple iOS devices.
Contactless payment adoption at retailer stores is gaining momentum as reported by research firm Aberdeen. The company claims that nearly one-third of all retailers either implemented or plan to implement some form of contactless payment technology. Initially the movement toward contactless technologies experienced resistance from business operators based on the high cost of implementing new equipment and the corresponding infrastructure necessary to complete the exchange of settlement data. With the evolution of strategic partnerships between NFC providers, payment processors, and POS vendors, retailers now have the opportunity to implement cost-effective hardware, software, and netware without necessitating structural changes. In addition, there is also a solid base for ancillary and future applications. Typically, contactless payments significantly reduce waiting times for customers by removing the hassle associated with cash payments or the processing of swiped electronic payment cards. Such benefits well apply to consumers using vending machine equipment.
Currently, there are at least five contactless/wireless technologies in use, including:
Near Field Communication (NFC) -- a standards-based short-range wireless connectivity technology that enables data exchange between multiple electronic devices. Similar to RFID, NFC involves radio frequency technology.
Short Message Service (SMS) -- service required for exchanging text messages between mobile devices and a POS solution (or vending machine).
Basically, NFC evolved from a combination of existing contactless identification and networking technologies but was designed to offer simplicity in connectivity while establishing high levels of reliability. Unlike RFID applications, NFC has a higher level of standardization, interoperability, and security. Compared to the Bluetooth process in which one device needs to contact (ping) a nearby device and formulate a compatible protocol to achieve connectivity, NFC is more intuitive. In other words, NFC does not require a device to seek permission before making a connection with a nearby device; the two NFC-enabled devices can communicate so long as they are within close proximity (normally four inches). NFC has superior networking functionality and dependable security features that qualify it especially well for use with transaction payment processors.
NFC allows consumers to easily connect to other NFC-enabled devices, perform financial transactions, and access a variety of digital content and media. NFC can be configured to work with all electronic payment formats (debit or credit transactions). An NFC tag is the component that allows devices to communicate with each other simply by being put close together. Although mobile devices are the most common host for an NFC chipset, the technology is not limited to mobile devices as some suppliers have begun placing chips in plastic cards, smart cards, wristwatches, and key rings.
When an NFC device is within close proximity of a reader, secure data exchange can take place. Data transfer takes place as soon as the NFC chipset is detected by the NFC reader. With NFC payment technology the amount of the purchase can be immediately deducted from the consumer’s bank account, settled with stored credits/debits, or charged against a deferred form of payment (e.g. phone bill) .POS payment against a phone bill has gotten traction in Europe, but to date has not been widely deployed in the US. Additionally, NFC devices can be linked to a bank account so money can be debited directly from a user to the merchant. Similarly, NFC devices can be used for proof of purchase as the certificate of purchase is stored on the NFC chip and can thereby be redeemed by simply pointing the NFC device at a controlled gateway.