NFC-enabled Handsets – Mobile Payments Are On The Horizon

By Craig Conkling

An announcement this past June from Nokia, and more recent announcements from Google, RIM, and the AT&T, Verizon, T-Mobile and Discover Card Joint Venture (JV), provide a clear direction that mobile devices will be NFC-enabled (i.e. near field communication) and readied for mobile payments (i.e. m-Payments) in the next 18 months.

A Juniper Research report suggests that 1 in 6 mobile phone users will have NFC-enabled handsets by 2014, while IMS Research said that the number of locations accepting contactless payments will grow to over 12.5 million by the end of 2013. NFC technology is generally referred to contactless technology and has become available over this past decade due in part to the charters of the NFC Forum and Smart Card Association, which were formed to advance the NFC/contactless technology. At a high-level, NFC technology is based on inductive (electromagnetic) coupling of two antennas (or wires), where a current is generated in the (passive) receiving antenna, and consequently creates energy in the receiving side without the use of a battery. It operates at 13.56 MHz with a bandwidth of 14 kHz, it has a data rate of up to 848 kbits/s, and a set up time of less than 100 msecs (milli-seconds). In addition, it transfers data or information over-the-air at a distance of up to 20 cm (centimeters) between two devices.

The introduction of “contactless technology” in cell phones for mobile applications was a “contactless wallet” by DoCoMo in 2004 in Japan. Then Nokia introduced “NFC standard technology” beginning with the 6131 in January 2007, and then with their 6212 in April 2008. NFC technology has gone through hundreds of trials globally over the past decade that range from poster reading, to transit payments, including high-value financial transactions, with participants from the semiconductor, handset, carrier, hotel, credit card and banking industries as well as local governments. There are three major application areas for NFC technology: simple pairing, sharing content or information and small files, and m-Payments.

Simple pairing application allows for an easy and secure connection between handsets or any two devices that have Bluetooth (BT) and Wi-Fi technologies. The Bluetooth SIG (Special Interest Group) incorporated NFC in BT v2.1 release for simple pairing as an OOB (out-of-band) feature, and the Wi-Fi Alliance has also included NFC as an option for their Wi-Fi Protected Setup (WPS) feature. The OOB link transfers device credentials: control, key or address information that are non-data oriented, between devices. The fast set up time and short distance between devices provides a secure and temporary connection that allows the handsets’ BT or Wi-Fi to then quickly sync with minimal user interaction before transferring content or large files (at the higher speeds).

Sharing information and small files application allows a user (or users) to simply transfer information without having to “pair’ between devices. One application is when a user wants to read or download information from a NFC-enabled poster (a.k.a. smart poster), such as a train schedule or an overview of a movie. The user opens the NFC application on their handset and touches their handset to the NFC tag located on the poster. The tag (represented by a NFC icon or logo), has the information programmed into it, and this information is transferred to the handset. The same basic process applies when transferring small files or other information between handsets.

M-Payments application is the most complete use of NFC technology in that it requires an NFC radio chip as well as a SE (Secure Element) chip. These two chips together with the handset’s SIM (Subscriber Identity Module) card create a secure and convenient conduit for financial transactions to take place. As described in the JV announcement between AT&T, Verizon, T-Mobile and Discover Card, called ISIS, mobile payments (using credit and debit cards) are one facet of the solution. Coupons, transit passes, tickets and reward cards also can be carried “digitally” in an e-wallet, eliminating the need to carry plastic cards in your personal wallet.

For a successful adoption of NFC in handsets, however, a worldwide standard must be followed and an ecosystem primed to manage the fusion of applications. NFC technology has been approved as ISO, ECMA and ETSI standards, and Japan’s DoCoMo, which introduced contactless technology in cell phones in 2004, is transitioning to the NFC technology standard. Europe, Australia, parts of Asia (e.g. Singapore) and North America are embracing NFC and realize that participation across the industry is crucial for its success. Greater collaboration is needed, though, to develop and extend the ecosystem so NFC-enabled handsets and other devices will be seamless, secure and reliable when used globally…(a white paper to follow).