Mobile Solutions

NFC: A Breakthrough in Mobile Payment?

Mobile payment systems have been on the market for a few years, but they haven’t really caught on yet. NFC wireless technology is set to change that.

09 Feb. 2016

Wireless data transfer technologies revolutionize our everyday lives and will be key components in the Internet of Things. Near field communication (NFC) is a method of data transfer that is starting to become increasingly prevalent in Germany. The clue is in the name: Near field communication only works over short distances, generally up to a maximum of four centimeters. The new data transmission standard is already being used by authorities (electronic ID cards) and banks (credit cards). The reason? NFC enables simple and secure communication between two devices.

Another application for NFC is e-ticketing, where it allows smartphones to be used as event or travel tickets. Automobile manufacturers also successfully utilize the technology to automate processes. Cellphones can quickly and easily be linked with vehicle systems via a wireless NFC interface, enabling control over multimedia systems, for example. But even though many industries have already adopted NFC, users are still skeptical of the technology when it comes to its main area of application: Cashless payment via cellphone.

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A simple wave is enough: How NFC works differently to Bluetooth and Wi-Fi

In contrast to Bluetooth or Wi-Fi, NFC is designed for simple, secure communication between two devices. A connection can be established by just bringing two NFC chips close to each other. The user only has to confirm the connection to begin transferring data or to link two devices. Tedious steps, such as searching for and selecting devices or entering a code, no longer have to be performed. And the limited range prevents other devices from logging in from afar. So surely NFC would be perfect for quickly and simply exchanging large volumes of data between two devices? Sadly not. The maximum data transfer rate comes in at just 424 kbit/s – considerably slower than Bluetooth or Wi-Fi. However, there is a very good reason for this.

Completely contactless payment with NFC

The limited range and data transfer rate are intentional—they are important factors in secure mobile payment. Mobile payment is not only the reason NFC technology was developed, but is also one of its biggest markets. Discount supermarkets have helped to drive the adoption of contactless payment by installing NFC checkouts throughout their stores. With an NFC-enabled credit card or smartphone, customers can pay for their shopping almost effortlessly. However, contactless payment is only usually available for purchases under 25 euros. If the total amount due is higher, the mobile payment provider will request authentication via PIN, signature, or fingerprint scan for security reasons. But the real driving force behind NFC payment are finance and telecommunications companies. Many banks are already providing their customers with debit and credit cards equipped with NFC chips that enable contactless payment. In Germany, the most common prepaid credit cards are Girogo from Sparkasse, Mastercard PayPass, and Visa payWave. Even ATMs are gradually becoming NFC-enabled. Contactless readers allows customers of a bank to withdraw cash not only with their cards, but also with mobile devices or wearables. It is estimated that all ATMs in Germany will be NFC-enabled by 2020.

However, contactless credit cards are facing increasing competition. A smartphone with an integrated NFC chip could completely replace bulky wallets. Users can conveniently make payments at any time with just a NFC-enabled smartphone and a wallet app, without having to rummage around in their purse for cards or notes. After holding back for a long while, Apple finally entered the German mobile payment market in 2015 with its Apple Pay service. The Apple Watch is expected to set the trend, even removing the need to reach into pockets for a smartphone. Will this development finally propel mobile payment into the German market? It looks likely. Until now, the mobile payment market has failed to really take off because of a lack of infrastructure of NFC-enabled smartphones and checkouts, not to mention a lack of the users’ trust. Both of these are now slowly starting to develop. While NFC is not one hundred percent protected against hackers and other threats, additional security mechanisms such as fingerprint scanning or PIN entry make payment via cellphone more secure. Experts predict that in ten years’ time, smartphones will be the third most common payment method after credit and debit cards. Contactless payment using NFC is already available at around 60,000 locations in Germany.

At CeBIT 2016, visitors can experience even more exciting applications for NFC and other wireless technologies. Hall 5 will demonstrate how NFC-enabled smartphones will play a key role in the smart home. And at the Public Sector Parc in Hall 7, experts will discuss the e-ID authentication mechanism and evaluate how secure NFC really is.

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