NFC Tech's Payments Potential Boosted by New Handsets, EMV Standard

Near Field Communication technology has made some noteworthy advances in 2012 as a foundation for mobile payments, even though its actual adoption remains low. The technology stands to get a further push from the ongoing adoption of the EMV standard in the U.S.

NFC technology allows mobile devices to make contactless payments at the point of sale. Digital wallets based on NFC technology allow users to protect their accounts with a PIN and use the phone's other features, such as its GPS, to provide targeted offers.

The Google and Isis mobile wallets both rely on phones or tablets built with NFC chips to make contactless payments. PayPal and LevelUp, among others, support NFC technology as an option. Nintendo even built an NFC reader into its latest game console, though the company has not yet indicated whether this will be used for payments.

More companies will likely support NFC as the U.S. furthers its push to adopt the secure EMV standard for credit and debit cards.

"We have this interesting shift driven by EMV that's going to carry NFC hardware deployment right along with it," says David Schropfer, head of mobile commerce at The Luciano Group.

Because of the hype surrounding mobile payments, restaurants and other merchants are making an early push in NFC acceptance.

Today, a growing number of Google Android handsets have NFC chips (even though not all support Google Wallet), as well as the Nexus 7 tablet. Microsoft also supports NFC-based payments in Windows 8 phones.

While there are predictions that Apple will equip the next iPhone with NFC, Apple's exclusion of the technology in the iPhone 5 might have set NFC adoption back two years, says Windsor Holden, research director at Juniper Research.

"With NFC payments we're talking about introducing a new mechanism within an everyday procedure, fundamentally changing the mindset of how people pay at point of sale," Holden says. "That's coming up against set behavioral patterns. It would take someone like Apple to boost that."

Not only may Apple's exclusion be perceived as uncertainty, but it also means Apple devotees are not being exposed to NFC's potential uses.

It's all about education, Holden says. In the UK, 23 million contactless cards circulate in the market, giving half of consumers the ability to make contactless payments. However, when asked, only 13% of consumers thought they had a contactless card, Holden says.

Apple's decision to exclude NFC technology from the iPhone 5 is consistent with Apple's strategy, Schropfer says.

"Apple likes to release products that are immediately relevant on the day they are launched," Schropfer says. Today "there are a limited number of point of sale terminals to be used and consumer adoption is low."

If most mobile phones have NFC built in by 2013, then based on a 22-month cycle for phone upgrades, most consumers will have an NFC-equipped handset in 2015, Schropfer says.

This fits perfectly with the U.S. timeline for adopting the EMV standard.

Visa's timeline would have most merchants accepting EMV payments in 2015, with fuel merchants given until 2017. The other card networks established a nearly identical timeline. Merchants must be able to accept EMV payments or face a shift in liability for fraud.

EMV-compatible terminals in the U.S. will also likely be NFC-capable.

And while merchants hesitate to rebuild their entire payments infrastructure, many express optimism and see the benefits of the technology. Contactless payments may speed up checkout and create a better consumer experience in stores, plus the technology can enable location and transaction data, allowing retailers to send targeted offers and loyalty-based rewards.

While both analysts say the payments industry will continue to move towards NFC transactions, the transformation will be slow. Next year is one step closer to a contactless future.