If both Google and Apple are talking Near Field Communication, there must be something to it. So what’s with the technology behind NFC?

Computerworld gives a pretty solid inside look. And it turns out that, as usual, our friends in Japan have already been using it casually for… ahem… “ever” (ie. longer than two months. Which is, of course, in tech-speak “forever”).
In the near future the technology will serve its purpose in the POS arena. It is very convenient for the end user and helps merchants to keep costs low. A process as simple as fishing the credit card out of the pocket.

Security

With the technological aspects covered, let’s look at the security issues we have to deal with: Identity fraud is one of the major pains, a multibillion-dollar crime causing U.S. retail merchants fraud losses of $191 billion annually alone (Javelin Strategy & Research 2009). The costs caused by fraud are enormous for retailers and are dampening consumer confidence when it comes to online shopping.

Intermediate Steps

The way it looks at the moment, the cause for concern seems justified. Complementary solutions are still missing to create a secure connection between the credit card and the NFC chip. A simple step in between to validate the card would make the whole process much more of a secure mobile solution.

Near Field Communication has a bright future ahead, with one in six mobile subscribers worldwide likely to own a device enabled with NFC capabilities by 2014 according to Juniper Research. Interesting times!

Last month Jumio attended Bay Pay’s Luncheon on The State of Mobile Payments in the US which included an interesting overview of six different payment models:

1.  P2P Money Transfer
2.  Social Gaming
3.  Payment Card to Payment Card
4.  Retail Card to Payment Transfer
5.  Retail NFC and Contactless Sticker
6.  Mobile Card Terminal

1. P2P Money Transfer
As the name suggests, this is for payments between two individuals. Some examples of companies that use the P2P money transfer model include Obopay and Paypal.  In the case of Obopay, users input a phone number, type in the amount to be sent and if the other party has an account, they receive the funds immediately.  If the receiver does not have an account, he/she needs to set one up in order to receive the money.

2. Social Gaming
This type of mobile payments primarily facilitates the purchase of virtual currencies to be used in social and mobile games.  Some players in this space are Boku and Zong.  Typically, these companies will use premium SMS, and then add the ensuing charges to a user’s mobile bill.

3. Payment Card to Payment Card OR Card to Card Transfer
An example of this type of service is one that was recently launched by MasterCard which allows consumers to initiate a transaction from one MasterCard to another MasterCard.  Currently, MasterCard uses the Obopay platform to facilitate this.

4. Retail Card to Payment Transfer OR Retail 2D Bar Code
Starbucks Card Mobile — an iPhone/iPod Touch application that displays a barcode that a consumer uses just like a Starbucks Card to make purchases. MFoundry facilitates this, some refer to this as the virtualization of a gift card.

5. Retail NFC and Contactless Sticker
Retail NFC (near field communication) requires a piece of hardware, either a chip or a plug-in that is embedded or attached to the smartphone.  Some examples are Visa’s Paywave, MCPlus’ PayPass Contactless.  An example of a company using Contactless Sticker is Bling Nation.

6. Mobile Card Terminal
Turns a mobile device into a credit card terminal.  Some of the current players include Square and Verifone.

E-Commerce is also a large part of this model with players like Amazon.
In spite of a wide array of varying models, the key barriers in the U.S. are:
1) Weak consumer demand
2) Current methods are sufficient — Insightful comment from the audience: no matter how billing is done, whether through iphone app, mobile bill etc. at the end of the day, all roads eventually lead to your credit card or your bank…
3) Concerns about privacy

Further interesting facts about Japan: Japan is a country often cited for its successful implementation of mobile payments.  The back story includes early investment by NDT Docomo to put a chip into the mobile phones they were manufacturing, enabling consumers to use it for transit costs, and then later at retail establishments.  It eventually became so popular that all the other carriers also embedded it.  Interestingly, in spite of the chip being embedded on the majority of phones in Japan, consumer adoption of mobile purchases is only at 17%, still less than 20%.