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What is NFC and Why Do You Care?

November 4, 2013 - Mobile - , , ,

Despite all the stunning projections for how big the market for mobile transactions will grow over the next several years, a simple uniform system for purchasing via the handset has remained a significant roadblock. But with the growing acceptance of a technology called NFC as the single technical standard for processing mobile payments, mobile commerce seems to have hit its tipping point this year.

NFC, or Near Field Communications, is a technology that allows for short-wave wireless communication back and forth between two NFC sensors placed near each other. These sensors can be embedded anywhere, including handsets and retail terminals, creating a way to transfer data (like credit card numbers) between devices. As a result, any information on your phone (like credit card data) can be accessed without having to ever touch the actual card. G+ has created a great mobile payment infographic detailing the process, which you should take a look at.

Adopting the NFC standard has allowed handset manufacturers to safely invest in building NFC technology right into their devices. Just as critically, it has allowed retailers to invest in checkout terminals that can process NFC payments. Google’s Eric Schmidt recently estimated that one-third of retail terminals will be NFC-friendly within twelve months.

And when Apple finally succumbs to the endless rumors and introduces a phone-based payment system, that figure will accelerate even more dramatically.

So while a host of “like-NFC” technologies — solutions that seek to provide the same consumer benefit without the requisite NFC hardware — have been developed over the past several years, these have largely been driven by short-term needs. As a result, most analysts believe that in the near future, NFC will be seen as the universal standard: Yankee Group estimates the number of NFC-enabled phones worldwide will grow from 7 million this year to 203 million in 2015, and the Juniper Group is even more optimistic, putting the number at 300 million by 2014.

A pretty powerful, albeit not exactly cooperative, set of companies want to influence the ways your phone will replace most of what’s in your wallet (including your credit cards, debit cards, ID and loyalty cards). Some, like Google and Paypal, see the opportunity to create a massive and ongoing revenue stream. Others, including the banks and credit card providers, just want to hold onto what they already have.

Because of the money involved, most conversations about NFC technology have focused on its use as a payment tool. But NFC technologies are not simply a means to buy and sell things more efficiently. Imagine everything you carry with you and you start to see how the idea of the mobile wallet impacts loyalty programs, couponing, POS and virtually every other aspect of the retail sales process.

In our second post, we’ll explore the far-reaching impact NFC technology will have on our retail clients. And finally, we’ll look at the technology from a consumer perspective.

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