2011 could go down as the year of NFC.
NFC, for the uninitiated, is short for near-field communication, a chip technology that, when placed in two different devices, lets small amounts of data be sent over very short distances between them. This can include credit card information, train ticket info, a coupon bar code, and more.
Though there are already credit cards with NFC chips inside, this year those chips are going to make the leap to mobile phones in significant numbers. A burgeoning industry is growing up around mobile payments using NFC technology--one that has the potential to be extremely lucrative for chipmakers, smartphone makers, retailers, wireless carriers, advertisers, credit card companies, and others. It's why you've probably read a lot of recent reports about phones and services looking to incorporate NFC.
Unfortunately, the reality is that right now there are very few phones--actually two: the Google Nexus S and the Nokia C7 or Astound--with NFC chips already inside for sale here in the U.S. But many more are expected to be on their way by the end of this year. In fact, researchers at Forrester say 40 million to 50 million phones with NFC will be sold in 2011. It's still a relatively small number--to compare, in 2010 there were 1.4 billion cell phones sold worldwide.
So should you as a consumer even care? We compiled this FAQ to help you make that decision for yourself:
What could you use NFC for?
There are a lot of creative ways to use NFC, but a basic example of how mobile NFC-based payments--the thing most of us will use the technology for--will work is this: You go shopping for shoes. When you find the perfect pair and head up to the cash register, instead of whipping out your wallet and fishing around for a credit card, you just wave your phone over a payment terminal on the counter near the cash register.
The catch is you need a phone with NFC chips inside. That phone will need software that enables mobile payments, and the retailer will need to have a point of sale terminal that accepts NFC payments. The purchase will show up on your monthly credit card bill.
But let's say this store doesn't have your size? This is where having a smartphone equipped with NFC beats an NFC-equipped debit card: you could potentially wave your phone at a tag on that pair of shoes, and up on your phone's screen would pop places to buy those shoes in the right size online and have them shipped to you.
And what if you shop at this particular department store often? Your phone could also keep track of your points or rewards from the store and you could be sent mobile coupons that you'd use your phone to redeem.
Where could you use it?
You'd be able to use your NFC-equipped phone only at stores (or even unmanned kiosks) that have a compatible point-of-sale terminal, which is provided by companies like VeriFone. The same way certain retailers only take MasterCard, Visa, or American Express, not every retailer will accept every NFC-equipped payment device.
Many businesses won't be starting from scratch on this front though. CVS pharmacy, 7-Eleven, Best Buy, and Home Depot, just to name a few, already have these terminals set up in many of their stores. McDonald's, for instance, currently accepts contactless payment at every one of its locations in the U.S. for those who have an NFC chip in their credit card already.
And the list of NFC-equipped businesses is likely to grow. In the face of the inevitable wave of payments going mobile, it's very much in a credit card company's interest to make sure that when the credit card it issues is connected to a smartphone, the phone's mobile-payment feature will be accepted at a wide variety of places.
What phones will have NFC?
There are currently two phones for sale that have NFC chips inside already. Google's Nexus S and Nokia's C7, also rebranded as the Astound for T-Mobile. But there will be more later this year. Samsung just introduced the Galaxy S II at Mobile World Congress, and LG says it has plans to bring NFC to phones in Europe. Microsoft and RIM are rumored to be working on NFC-equipped phones, and Apple has been rumored to be working on an iPhone with NFC for about a year, though it's not clear when such a phone would be ready for sale.
When it comes to NFC-based payments though, it's not just about hardware; they have to have software that enables those NFC chips to be used. NFC-equpped phones will come with a mobile payment application preinstalled that you need to activate and hook up to your credit card, or you'll be able to download software after the fact.
Google's Android software is expected to turn on this feature, enabling mobile contactless payments, this year. And Nokia has said it will activate the NFC feature in the C7 (which uses the Symbian mobile OS) sometime this year.
If Apple does make a phone with NFC, it will also have to include functionality in iOS to enable those chips.
Where do the carriers come in?
In the U.S. all four major carriers have announced plans to offer their customers mobile payment services, though none of those services are activated yet. Sprint has said it will be first. A Sprint representative says it will have a mobile payment service by the end of 2011. Though the company hasn't announced who it will be working with, the news is a good indication that the carrier will be offering phones that are equipped with NFC chips by the end of the year.
Last fall, Sprint's three competitors formed a joint venture called Isis. AT&T, T-Mobile, and Verizon are working together to create a mobile payment system, but it's not scheduled for wide rollout until sometime in 2012. Details are few, but the group says the venture's end goal is to move beyond just enabling mobile payments via phone. Eventually Isis says it will provide an entire "mobile wallet" that will eliminate the need to "carry cash, credit and debit cards, reward cards, coupons, tickets, and transit passes."
Other big players
Even those outside the traditional realm of retail are fighting for a piece of the mobile payments pie. Though neither of them have confirmed on the record, both Amazon's and Google's names have been mentioned in connection with NFC.
Google is reportedly working on a project for facilitating mobile payments. The company has been linked with MasterCard and Citibank in planning for the ability for Android phones to be hooked up with credit or debit cards provided by those companies. But Google might be up to much more than enabling payment via Android. The company is reportedly interested in taking the information gathered via payments made to brick and mortar retailers via NFC and selling ads against it, similar to how the company aims ads at people based on Google searches or Gmail messages.
Advertisers love the idea of mobile payments. That's because using NFC for retail transactions is seen as "a way to connect the physical world with the virtual world," said Todd Ablowitz, a mobile payments consultant with the Double Diamond Group.
For advertisers trying to reach a certain demographic--aka you--it's the perfect opportunity: knowing where you shop and when. If Google knows where you shopped and when, it can target marketing and advertisements to you even more accurately. And the company could potentially ask for more money from the businesses to which it sells ad space.
Amazon.com could also be planning an interesting twist on NFC. Besides being a way to pay for items with a mobile device, it could also be a way for a store to take advantage of Amazon's enormous inventory. As mentioned in the scenario listed earlier, you could wave a phone at an item's tag and find it on Amazon, or you could see an ad for something, wave your phone at it, and buy the item.
Again, these are just scenarios so far. It's been reported that Amazon.com is still just thinking about such a project, and will decide in a few months whether to pursue it.
But it's clear the potential for many interesting ways to use NFC is there, and the technology could be very useful for regular people. No, we're not going to put our wallets stuffed with cash and credit cards away for good, at least not in the next few years. But the pieces to getting there are coming together.
"The things that will come out of this...I look at it a lot like the Internet. I do think it has that kind of size," Ablowitz says he tells his clients when consulting on the topic of mobile payments. "Which is why people who are giddy about it and say it's going to take over the world overnight are not accurate...You have to be sober about the length of time for things like this to develop."