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Posted Date: 9/4/2012

NFC Reaches Tipping Point?

By Julie Ritzer Ross
Is near-field communications (NFC) just a passing fad? Or, is it here to stay? Apparently, the answer is “no” to the former and “yes” to the latter.
Industry analysts describe 2012 as the tipping point for NFC the technology. A report from Berg Insight (www.berginsight.com), Gothenburg, Sweden, pegs global sales of NFC-equipped smartphones as having increased ten-fold in 2011, with 700 million such handsets expected to be in circulation by 2016. More than 40 NFC-enabled devices were released last year alone. “Even though it will take some time before stakeholders agree on business models for payment networks, other use cases—such as reading tags—may well be compelling enough for handset vendors to integrate NFC in mid- and high-end devices already today,” says Andre Malm, senior analyst.

Meanwhile, Gartner (www.gartner.com) estimates that by 2015, 50 percent of smartphones will be NFC-enabled, and Juniper Research (www.juniper research.com) says U.S. merchants will ring up more than $74 billion worth of NFC-facilitated transactions that same year. Deloitte anticipates that the number of devices with embedded NFC will reach 200 million by the end of this year and that by 2013, consumers will own a collective 300 million NFC smartphones, tablets, and e-readers. Major smartphone manufacturers, including LG, Nokia, Samsung and SONY, comprise the ranks of vendors that already offer devices with an NFC component, and at press time, rumors that an NFC chip will be a component of Apple’s iPhone5, slated for release shortly, continued to swirl.

“NFC is one piece of the payments puzzle, but it is an increasingly bigger piece that can’t be ignored,” affirms Markiyan Malko, director of research and development at Merchant Warehouse (www.merchantwarehouse.com), Boston. He notes that although such technology-related complications as the still-undeveloped universal specification for communication between mobile wallets and merchants’ systems have traditionally impeded mobile wallet adoption to a degree, consumers in all demographic segments are quickly recognizing the convenience-related benefits of NFC-enabled mobile payments as a whole and the similar advantages afforded by mobile wallets.

Recent developments indicate that NFC in many forms is indeed taking hold. Google, which leverages NFC technology to power its Google Wallet mobile wallet, apparently takes so much stock in NFC that it has just enhanced Google Wallet to accommodate all Visa, MasterCard, American Express and Discover credit and debit cards. (The new version is cloud-based, but still requires an NFC-enabled device). Microsoft (www.microsoft.com) recently announced the development of its Wallet Hub for Windows Phone, which will be the sole home for all purchases on the devices, including contactless payments, deals, loyalty cards, in-app purchases, and credit and debit cards. ISIS, a consortium of Verizon, AT&T and T-Mobile USA, expects to pilot test its mobile wallet later this year. A Microsoft spokesperson says the company is making a large push into contactless payments and “expects to have a solution with ISIS next year, but not at launch.”

Additional proof of NFC’s staying power lies in the fact that it is becoming an enabling technology it increasing the functionality of mobile wallets with value-added services, including couponing and loyalty programs. VeriFone (www.verifone.com), ViVOTech (www.vivotech.com) and Ingenico (www.ingenico.com) are collaborating with Google to enable offer redemption, rewards and receipts at the POS—with NFC as a carrier. Ayden Payments, a global e-commerce platform provider headquartered in Boston, has been engaging in talks with Google about adding an NFC-powered social payments component to Google Wallet, according to Peter Caparso, Ayden’s president.

With demand increasing and developments ongoing, embracing NFC makes sense for SMBs and the VARs that serve them. “We are seeing pockets of interest from the reseller community; they say that smart SMBs are sitting up and taking notice,” claims a spokesperson for VeriFone, which earlier this year announced it will be integrating NFC support into all of its payment terminals to help spur adoption and move wireless payments forward, and unveiled PAYMEDIA UAP, a suite of software and services that permits mobile wallet transaction acceptance to be managed my merchant systems regardless of wallet, app or program. Those VARs that hang back may be leaving business on the table for independent sales organizations (ISOs), merchant service providers (MSPs) and other entities outside the channel, all of which are beginning to promote NFC-enabled hardware to their customer bases for the purpose of contactless payments as well as eventual mobile wallet acceptance, the spokesperson states.

Greg Boardman, senior vice president, Ingenico North America (www.ingenico.com), concurs, citing a push to use NFC technology to bolster the security of mobile payment acceptance devices—both purpose-built and consumer models acquired by merchants for deployment at the POS.
He adds, “What we are currently saying” to constituents is “besides the fact that NFC acceptance is inevitable” from a consumer demand standpoint and because it supports many services, it is “inherently more secure than magnetic stripe technology and should have a place at the table,” asserts Greg Boardman, senior vice president, products and development. Ingenico has integrated its iSMP smart Mobile EMV-enabled mobile payment solution with the Voltage Security (www.voltagesecurity.com) Voltage SecureData Payments offering. The former permits Apple iPhone and iPod Touch devices to function as NFC and EMV chip-and-pin mobile POS solutions; the latter handles the end-to-end encryption of payment data without the need for key injection, rotation and management—a capability Boardman deems a catalysts in inducing smaller retailers to jump on the NFC train.  In a related vein, ROAM Data (www.roamdata.com) has rolled out the G3X mobile card reader, which supports NFC (and EMV) on iOS, Android and Blackberry devices.

Security Snafus
Still, there remain some security issues—some general and others, related to mobile wallets—that must be resolved before NFC acceptance becomes widespread. One general issue centers on the placement of the secure element (SE) within NFC-enabled mobile devices, and which location best serves its purpose. The SE is the combination of hardware and software that verifies credit cards’ authenticity and links them to a credit or debit account. Some proponents believe a software version of the SE should be integrated into devices’ SIM cards; others want to see the SE positioned inside a separate, miniature SD memory card. Proponents of the miniature SD memory card approach favor it because it closely mirrors how banks currently issue credit cards, manufacturing them first and adding the SE—in this case, the series of 1s and 0s encoded on the magnetic strip—afterward to be more ironclad, says Diarmuid Mallon, senior product marketing manager, mCommerce at Sybase 365 (www.sybase.com), a Dublin, Calif.-based Sybase subsidiary and mobile commerce solutions provider. The fact that certain devices, including iPhones, do not have a mini-SD slot, however, presents an obstacle here, Mallon observes.

On the NFC-enabled mobile wallets and mobile payment front in particular, some sources point to the need to require six-digit PIN authentication, rather than its four-digit counterpart, to create an added layer of data protection for mobile payment initiation. Also on the list are the design of NFC modems in smart phones to prevent unnecessary transmission of default card information that may otherwise be utilized for skimming purposes, and the use of mutual authentication between the wallet client and the server application to ensure that the wallet client is legitimate, reports Steve Bacastow, senior vice president of CorFire (www.corfire.com), a mobile commerce solutions provider headquartered in Alpharetta, Ga.

Moreover, despite the role NFC is playing—and will reportedly continue to play—in the delivery of mobile payments and mobile wallet offerings, VARs need to keep their eyes peeled for competitive technologies and not, as one source says, consider NFC the “be-all and end-all here.” eBay uses a cloud model for its PayPal mobile wallet, which was launched in late 2011 and comprises a mobile phone app and a physical payment card. Consumers can leverage either or both to store credit and debit card numbers, loyalty program membership data, and the like.

“We see a multichannel world where you want to pay on your PC, on your mobile, and/or in a store,” David Marcus, vice president and general manager of PayPal Mobile, told attendees of the Mobile World Congress in Barcelona, Spain last February. “We’re not going to bet the farm on NFC, or on tapping your phone versus swiping,” to complete transactions via mobile wallet.
Several sources other than eBay—although they asked to remain anonymous and would not provide specifics—also claim to be undertaking projects involving the cloud, rather than NFC, as a mobile wallet delivery mechanism. A few say the appeal of mobile wallet solutions supported by the cloud—specifically, simpler consumer and retailer usage requirements (like downloading apps once) and, for merchants, no need to make large infrastructure investments in POS systems that can communicate with NFC-enabled mobile handsets—will at least put them on a level playing field with those supported by NFC.

“Things will likely change if Apple does offer an iPhone with an NFC chip,” asserts Lara Albert, senior director, global marketing at Globys (www.globys.com), a Seattle-based telecommunications solutions provider. “But there is leeway for other technologies to take hold.”

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