Near Field Communication (NFC) is a short-range wireless communication technology that can be used to pay for retail transactions and other digital exchanges.
(This story accompanies a broader look at NFC and its uses, "Despite Apple, NFC is catching on -- just not for payments quite yet.")
NFC is already appearing in many smartphones and some tablets, and has been widely deployed for years in Japan and South Korea for tasks including transit rides and small retail purchases. Early NFC trials for purchases are underway in Europe, India and the U.S.
An NFC chip in a smartphone can be used to communicate with another NFC-ready device. The technology operates in two-way fashion, so that information can be passed in both directions. That means a bank can electronically authorize payment to the store via an NFC-ready smartphone, and the store's NFC payment terminal can then send the phone a receipt as well as a coupon or other promotion for a future purchase.
NFC smartphones can also be used to read NFC tags -- small NFC chips that can be attached to signs to transfer information -- and to swap music and other data files. Phones like the Samsung Galaxy S III use their Android Beam feature to use NFC to kick off a Bluetooth data transfer.
How it works
The technology builds on Radio Frequency Identification (RFID), first patented in 1983, which uses an ISO/IEC standard. NFC was approved as an ISO/IEC standard in 2003. The NFC Forum, formed in 2004 by Nokia, Philips and Sony, promotes NFC and device compliance and now has more than 175 member companies, including banks that issue credit, wireless carriers and mobile device makers.
NFC-ready devices must come within 4 centimeters (roughly 1.6 inches) of each other to communicate. Unlike what's shown in some commercials, a physical touch isn't required to share information.
Bringing two devices containing NFC chips together activates magnetic induction, similar to the way proximity cards and access cards carried by workers have been used to unlock doorways for years. Once the two devices are linked, they exchange data over the unlicensed 13.56 MHz radio spectrum -- the same spectrum as proximity RFID tags and contactless smartcards -- at the relatively slow data rate of up to 424 Kbps.
NFC supports encryption, and the fact that the devices must come so close together to communicate further bolsters security because the odds of a hacker intercepting a radio signal over such a short distance is minimal. NFC draws less power than Bluetooth wireless, but early rollouts of NFC are being studied to see how much the constant use of NFC may drain a smartphone.
The NFC Forum defines three modes (PDF) of NFC operation. Peer-to-peer mode enables two NFC devices to communicate with each other to exchange information and share files. Reader/writer mode enables NFC devices to read information stored on NFC tags embedded in smart posters and displays. Card emulation mode enables NFC devices to act like smart cards, allowing users to make retail and transit purchases.
NFC and other options in the U.S.
Google Wallet is an application that uses NFC to make mobile payments. It first appeared in September 2011 in the U.S. on the Nexus S smartphone over the Sprint wireless network. The Samsung Galaxy S III launched in 2012 with NFC and S Beam (built on Android Beam) for data sharing.
Samsung also launched tiny NFC TecTile tags in 2012 that can be programmed and rewritten by NFC devices. For instance, a tag stationed near a bedside could be programmed to turn the phone's music app on each time the phone comes close. An NFC tag can also be used in a billboard or kiosk, much the same way QR codes are used to provide information when read by a smartphone or other enabled device.
When the Apple iPhone 5 launched in September 2012, many expected it would have NFC, but it did not. It instead relies on Apple's Passbook app and barcodes on the phone's display that are read by optical scanning terminals in stores and at airport check-in counters. Starbucks and Dunkin' Donuts also rely on optical scanners to read the barcodes on smartphone displays for customers who want to buy coffee and make other purchases.
In other mobile wallet developments in the U.S., the Isis joint venture of AT&T, Verizon Wireless and T-Mobile USA kicked off in October 2012 in Salt Lake City and Austin using nine-NFC ready smartphones to make purchases at NFC-ready terminals.
The activity around NFC and mobile wallet intensified in August, when more than a dozen major retailers including Best Buy, Walmart and Target formed the Merchant Customer Exchange (MCX), a mobile payments network.
MCX still hasn't said which payment technologies it is using, although the group is expected to have a major impact on mobile wallet growth given the size and influence of the retailers involved.
Other alternatives to NFC, such as barcodes and optical scanners that are used with the iPhone, have also emerged.
Square and, more recently, Bank of America's Mobile Pay on Demand service allow small retailers to use credit card readers attached to smartphones, which rely on apps to transmit the credit card data and receive an authorization. Customers make a digital signature on the display of the smartphone.
The widespread use of credit cards and even paper checks in the U.S. to make payments has put a damper on consumer interest in NFC in smartphones, analysts believe. Surveys also show a large group of Americans still don't trust the security of a smartphone when used to make payments.
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, or subscribe to Matt's RSS feed . His e-mail address is email@example.com.