It’s a Phone; It’s a Wallet; It’s NFC

Touching your phone to a sensor to make a purchase is one of the most compelling NFC applications – and it’s also one of the most complex. Downloading a URL or ringtone from a smart poster requires little application support and no authentication; but a secure purchase requires coordination from many parties.

NFC transactions have been a reality for some time in Japan, where millions of phones from NTT DoCoMo are used for payments in stores, mass transit stations and restaurants. However, since NTT DoCoMo also owns a significant stake in one of Japan’s largest credit card companies, creating the needed support for phone transactions was much simpler than in other countries. “The technology is there already, and proven; the biggest challenge on any pilot is to bring all the parties together to deliver a working solution,” says Mohammad Khan, President of NFC solution provider VivoTech.

Fortunately, great strides are being made thanks to several exciting trials of NFC-enabled phones.

NFC hits Broadway
One of the most extensive trials of NFC to date took place earlier this year at the NYC Mobile Trial in New York. Mastercard, Citibank, Nokia and Cingular, with support from VivoTech, partnered for the months-long test. Since MasterCard had already implemented the PayPass contactless payment system in New York, it was a perfect location.

“We were able to piggyback on existing POS (point of sale) infrastructure throughout the city,” says Peter Wakin, Director of Corporate Venturing at Nokia. And since Nokia has been working on NFC-enabled phones since 1991, getting the right phones was not a problem.

During the trial, participants were given Nokia NFC phones to use with their Cingular and MasterCard accounts at drugstores, fast food restaurants, movie theaters and even Citibank ATMs.  One particularly exciting aspect of the New York City trial was the integration of NFC readers into certain subway turnstiles. “Trial participants didn’t need to reach out to their wallet to pull out a card or stop by a ticket counter, but just tapped their NFC mobile phone on the contactless reader to go,” describes VivoTech’s Khan.

While security is always a concern with any payment, several protections were built into the NFC solutions. First, as noted by Wakin, the very fact that NFC is so short-range provides a layer of security. With ranges of around 2.5 centimeters, “you’re touching a point of sale” to make the transaction, so a remote scanner cannot easily steal information.

Adds Khan: “There is built-in security based on 128 bit DES keys that inhibit fraud or security issues with NFC mobile phones or contactless card-based payment.” Finally, PIN codes were still required for large transactions.

What’s in Store
Although full results are not yet available for the NYC Mobile Trial, initial feedback has been positive, and the trial went smoothly. “People lost phones of course, but there weren’t any major headaches,” says Wakin. The trial will certainly provide an important proof of concept for other companies exploring the complex issue of implementing cell phone-based NFC payments.

The task remains complicated, particularly in the US. A critical mass of merchants must be persuaded to add NFC readers, which can cost over USD$100; consumers must be educated about using NFC and its benefits; and, most importantly, banks and cellular providers must work together to provide a seamless experience for everyone involved.

However, with research firms such as ABI Research estimating that as much as 20% of all cell phones will ship with NFC within five years, expect to see NFC coming to a phone near you soon.