Guest writer Derek Vaughan walks you through Near Field Communications – a technology that may well make your wallet obsolete.
Imagine buying a cup of coffee at Starbucks and paying for it by simply ‘swiping’ your iPhone past the cashier. In seconds the money is paid to the retailer, and your iTunes account reflects the charge for the coffee. All of this has happened without you ever having to pull out your wallet or purse, and the transaction happens so quickly that you barely break stride on your way out of the store.
Sound like science fiction? Well, it’s not. If things materialize along the current lines iTunes may morph from an entertainment distribution platform into a full fledged banking system more akin to PayPal than to Napster.
This type of financial transaction will be enabled by a technology named Near Field Communications, or just NFC for short. As described by Wikipedia, NFC is ”a set of short-range wireless technologies, typically requiring a distance of 4 cm or less. NFC operates at 13.56 MHz and at rates ranging from 106 kbit/s to 848 kbit/s. NFC always involves an initiator and a target; the initiator actively generates an RF field that can power a passive target. This enables NFC targets to take very simple form factors such as tags, stickers, key fobs, or cards that do not require batteries.” In other words, NFC can securely transmit and receive data related to a purchase at a retail store – as long as the purchasing device is close enough to the receiver (and one assumes – that the buyer’s account has sufficient funds).
What brings NFC and iTunes together is the hardware currently being developed by Apple and enabled by iTunes. This would possibly include iPhones, iPads, iPods, and MAC computers.
A number of sources including PC Magazine are now reporting that the next generation iPhone – presumably named the iPhone 5 – will include NFC and be able to transact via NFC by charging the equipment owner’s iTunes account. The article goes on to quote a source familiar with the situation, ”From what I hear, it is possible the iPhone 5 will include NFC. An entrepreneur who is working on a top-secret NFC product told me today that he believes the iPhone 5 will have NFC and cited a friend who works at Apple as a reliable source for the information.”
Daniel Foster, an expert in online transactions and security with dedicated server company 34SP.com postulates, ”With the walled garden approach that Apple has developed coupled with the unparalleled growth of both the iPhone and iPad – Apple must be taken seriously if the company enters the transaction marketplace. Remember, many of the emerging market countries have yet to adopt the iPhone as well. The growth opportunities in India and China alone are enormous.”
So just how big is the marketplace for these types of transactions? A recent article by Bloomberg quotes PayPal President Scott Thompson from remarks made during a meeting with financial analysts. Mr. Thompson predicts that PayPal will double revenues and post sales of up to $7 billion by 2013. That would compare to sales of $3.4 billion in 2009. These revenues reflect only 12 percent of online purchases – and just a small fraction of offline purchases. Therefore, if Apple can enter this market and do for wireless transactions what it did for buying music – then $7 billion doesn’t seem at all unreasonable.
Although the path looks bright for deploying NFC technologies, not everyone is convinced that NFC will prevail in the future. Lou Honick is CEO of Host Merchant Services, a leading credit card transaction service. Mr. Honick notes, ”Near field communication technology holds significant promise for enabling mobile payments, however it comes with some significant caveats given the companies that are deploying it. Electronic payments have all but displaced cash, and while there are costs and drawbacks, businesses are forced to accept the bad with the good. Also, sixteen digit credit card numbers are really no longer adequate for the job they were intended to do because of fraud concerns.
NFC and mobile applications help solve this problem by adding enhanced security and encryption to transactions. However, while many merchants dream of breaking the Visa, Mastercard, Discover, and American Express oligopoly on forms of payment processing, and NFC certainly opens up alternatives, we have to be careful that we aren’t simply trading Visa and Mastercard for Apple and Google or even worse, AT&T and Verizon without any significant savings and benefits to the merchant. While it makes sense to move to an application based payment platform facilitated by NFC, it would be of far greater benefit to consumers and merchant to get there with an open and flexible platform that encouraged competition.
Unfortunately, it doesn’t look like that is the direction we are headed, and as much as I like Apple products, we all know how they feel about being open and flexible.
Whatever the final outcome, look for even more interest in NFC in the coming months as Android phones get into the act, and the mobile carriers themselves develop transactional systems to capture a bit of the payment system marketplace. With billions at stake, expect to see things move quickly in the wireless transaction market.
For more information on this technology – checkout The New York Times.
About the Author:
Derek Vaughan is a web hosting industry veteran and expert. Mr. Vaughan has architected the marketing growth of several prominent web hosting success stories leading to acquisition including Affinity Internet, Inc., Aplus.Net and HostMySite.com.
Prior to his entry into the web hosting industry, Mr. Vaughan was responsible for online marketing at The Walt Disney Company where he marketed ecommerce for the ESPN.com and NASCAR.com brands. Mr. Vaughan received his M.B.A. from Vanderbilt University and currently serves on the HostingCon Advisory Board.
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