Why your phone won’t replace your wallet just yet

While one analyst says this is the year that near field communication (NFC) technology will really take off, those likely to gain the most will be early partner adopters and end-users.

During a recent webcast, Nick Holland, a senior analyst with Yankee Group, gave a presentation on NFC and where he sees this technology heading.

Holland defined NFC as an ISO standard for a short-range radio communication technology that operates in the 13.56 MHz unlicensed radio frequency band and supports a range of about four inches. An NFC device can communicate with contactless infrastructure which is already being used in areas such as public transportation and card payments. The technology is primarily targeted for use in mobile phones and is capable of both passive and active communications, he added.

Today, there are three different modalities of NFC, Holland explained: card emulation where the NFC device behaves like an existing contactless card, for instance, at a point of sale (PoS), reader mode, where the NFC device is active and reads a passive RFID tag and P2P mode, where two NFC devices communicate with each other and exchange information.

While there are many application possibilities for NFC, such as mobile ticketing, mobile payments and more, Holland said the technology has the ability to provide users with the opportunity to get hyperlinked to the physical world.

“NFC provides the potential to interface with the physical world,” Holland said. “Users can tap their phone against objects that are NFC-enabled like bus stops or shop fronts, and they can do things like grab information or activate the download of an application.”

With NFC-enabled devices, Holland said people will be able to consume data in ways they’ve never had before.

“It’s great for non-tech savvy people who can just tap their phone against something to find out things like transport times,” he said. “It’s a brand new way for data services to be consumed and it gives mobile operators the ability to transition some of their customers from being just voice users, to something more.”

NFC technology can also unlock the potential for new ways of measuring location-based advertising because now, users have the ability to tap their phone at a store front, which proves they were there and were engaged with an advertisement, Holland said.

“The evidence of consumer engagement via NFC technology is as telling as a mouse click on a Web advertisement is,” Holland said.

While there has been some talk around whether or not NFC technology will eventually lead to the extinction of the wallet and other traditional payment vehicles such as cash and credit cards, Holland said he doesn’t see this happening for “a very long time.”

In order for NFC to replace traditional payment methods like cash, credit and debit cards, the value proposition for NFC technology needs to be “significantly better” than the payment vehicles that are already present today.

“It needs to be safer, more convenient, faster and more ubiquitous than anything else that’s out there,” Holland said. “Otherwise, NFC won’t replace existing payment methods.”

When asked about what other technology competitors are out there, Holland said NFC’s “almost a given at this point because it’s gained enough momentum to not really have any other competition.”

While this may be the case, there is one concern Holland has with NFC, where he believes if not used properly, can lead to fragmentation in the market place.

“With NFC, you really need to tell and educate people on what the technology actually does and what the relevant icons mean,” he said. “Consistent NFC branding will be critical in order to recognize an NFC object. If people aren’t told that items around them are interactive (NFC-enabled), they won’t know how to use it.”

To help avoid any confusion and segmentation, Holland recommends that cross-industry collaboration and participation with groups like chipset developers, systems integrators, software vendors, smart card/SIM manufacturers and PoS device manufacturers needs to happen. Holland also mentioned there’s the NFC Forum, which is a non-profit U.S.-based industry association that promotes the use of NFC in consumer electronics, mobile devices and computers.

So who can stand to gain the most from NFC? Holland said early partner adopters can take advantage of the technology now to further advance themselves on the learning curve, in addition to end-users, who can have a much more information-rich and interactive experience with the physical world around them.

“This is going to be the year for NFC,” Holland said. “We’ll see handsets come out and companies like Google experimenting with this technology. I’d say that within the next couple of years, we’ll see NFC embedded in handsets, similar to how cameras are in mobile phones now.”

Follow Maxine Cheung on Twitter: @MaxineCheungCDN.

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Maxine Cheung
Maxine Cheung
Staff Writer, Computer Dealer News

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