Envision bypassing the front desk of your hotel at check-in. Instead, you would use your smartphone to handle the transaction, and then again as a key to get into the room by holding it over the door lock.
And without moving from your stadium seat at a baseball game, picture buying a hot dog with your smartphone and choosing either to pick it up or have it delivered to you.
The scenarios may sound futuristic, but these are real-life examples of mobile applications used in hundreds of pilot tests over the past few years. The technology behind the apps is called Near Field Communication, or NFC. It is expected to be in the hands of smartphone users around the world starting next year, based on recent announcements from some of the world's largest handset manufacturers, wireless carriers and financial institutions.
Until recently, NFC received little attention outside technology circles. Most often, it has been described as the next version of contactless technology for smart cards already used at many retail locations, in public-transit systems and to gain entry into secure buildings in metropolitan Phoenix and around the world.
But analysts and industry players say contactless payments in phones, or "mobile payments," is only the beginning for NFC technology. When fully adopted, NFC is expected to alter how society communicates and functions on an everyday basis.
But before that happens, major hurdles need to be overcome.
Multiple industries have the existing infrastructure to support NFC technology. But as it rolls out to consumers, industry players need to iron out details surrounding payment structures, compatibility and availability of devices, revenue sharing and costs.
"We're all sitting and waiting while the giants position themselves and find their position of strength in the market," said Randy Vanderhoof, executive director of the Smart Card Alliance. "And in the meantime, consumers have to wait."
What NFC will do
For those who think of themselves as technologically challenged, NFC could be a lifesaver. Co-founders Nokia, Sony and Royal Phillips Electronics Inc. (now NXP Semiconductors) designed the technology with a goal of making mobile devices more intuitive and easier to use.
NFC-enabled smartphones can communicate and share data with other compatible devices by touching or holding a few inches from one another. NFC transfers data up to 424 kilobits per second. The radio frequency at which it operates is about the same as the frequency for WiFi and Bluetooth. That means, for example, an NFC smartphone would automatically sync to a Bluetooth headset by touching the two together.
It's also compatible with current smart-card infrastructures, meaning consumers could use their smartphones to make purchases at retail locations that have Visa PayWave or MasterCard PayPass point-of-sale terminals; buy tickets at public-transit systems that have readers at kiosks, such as the Valley Metro light-rail's Platinum Pass program today; and enter secured buildings, such as business establishments. Hence the term "digital" or "mobile" wallet.
"NFC has the contactless payment functions but is so much more than that," said Vanderhoof of the Smart Card Alliance, a non-profit, multi-industry organization with 170 members worldwide.
Unlike other contactless technologies, NFC switches among three modes of usage, according to the NFC Forum, which was co-founded by Sony, Nokia and NXP in 2004 and sets NFC specifications.
In card emulation mode, the chip stores information in the same way a smart card does. In reader/writer mode, the chip reads and runs data similar to how point-of-sale terminals read smart cards to complete payment transactions.
This is where merchants and advertisers can benefit from mobile payments via NFC, Vanderhoof said.
"That terminal could also send an ad or a coupon to the phone," he said. The customer could instantly redeem the offer or save it for later, as opposed to being forgotten in the wallet or thrown away.
Einar Rosenberg is chief technology officer of Miami-based developer Narian Technologies, an application developer and consultancy firm.
"It creates the easiest and most personal way to interact with your environment," Rosenberg said. "NFC could be involved in practically everything in your life."
Narian, who has been in the NFC business for nine years, is piloting a handful of multiplatform apps it hopes to launch next year.
Among them are apps for:
- Diners to place orders at restaurants from their NFC smartphones before the waiter gets to the table.
- Shoppers to page an employee for assistance to the exact spot they are standing in a grocery store, describing why they need help and even their appearance.
- Patients who have a hard time remembering to take their medication. The smartphone would show a reminder photo of which pill to take and even could let a pharmacy know when a refill is needed, all by tapping a phone to an NFC tag on the pill bottle, Rosenberg said.
Japanese mobile operator NTT DoCoMo placed third in one category of the NFC Forum's annual Global Competition this year with an idea to embed NFC tags in health-care equipment, such as blood-pressure monitors and scales. NFC phones could grab a person's medical data from the tag and transfer it to health-care providers via its mobile network to track the patient remotely.
In another category, Artesis University College of Antwerp in Belgium placed second for an app that allows schoolteachers to program information and exercises into NFC tags. Students then could tap NFC-enabled devices together to bring up information.
NFC's third mode of usage, called peer-to-peer mode, allows devices with NFC chips to share and transfer data with one another almost instantaneously by being touched or tapped together.
For example, a phone could transfer a photo to a laptop by tapping the devices together. That same laptop could then print the photo by touching it to an NFC-enabled printer.
"We'll be able to sit in our living rooms and our TVs and smartphones will communicate and we'll be able buy things off the TV right from our phones," said George Peabody, director of emerging technologies at Mercator Advisory Group.
Initially, mobile payments likely will be the first way consumers use NFC because it's familiar, he said. As it seeps into different industries over the next five to 10 years, he said, NFC will be as commonplace as GPS and Bluetooth are today.
"It'll be the kind of tool we won't even think about in five years when we use it," Peabody said. "By 2020, we'll be approving our payments on our mobile handsets by our gestures and by our voice."
What we're seeing
A few countries, such as Japan, have been using mobile payments, especially in public transit, for years. But this should not dim the excitement about NFC, said John Devlin, analyst at ABI Research.
Japan's technology, called FeliCa, only has card emulation mode, he said. But next year, smartphones all over the world will start to include all three capabilities.
Nokia, for example, has announced it will begin introducing NFC-enabled smartphones in 2011. Google Inc.'s CEO Eric Schmidt said the new version of its Andriod operating system would support NFC, while Jim Basillie, CEO of BlackBerry maker Research In Motion Ltd., said they'd "be fools" not to include NFC in future products. Although Apple has been tight-lipped, industry speculation and patent applications indicate the next-generation iPhone 5 also will be NFC-equipped.
When NFC smartphones hit the worldwide commercial market next year, it won't be the first time, said Peter Preuss, marketing committee chair of the NFC Forum. When Nokia launched the first NFC phone in 2007, specifications weren't fully in place and stakeholders couldn't agree on a business model to support the technology, he said.
"The manufacturers were saying, 'We can't implement this if the market isn't ready,' " Preuss said. "They realized that bringing NFC to market would require a broader-based effort, including organizations from wireless carriers to financial services providers to application developers. That tempered their initial excitement somewhat."
But now it's been gaining traction again. The NFC Forum has more specifications in place and also has created a universal symbol it hopes will be widely adopted as an easy way for consumers to identify where NFC services are located.
Worldwide shipments of NFC handsets are expected to hit 25 million next year, Devlin said - a huge jump from April's prediction of 5 million.
Last week, the U.S. joined the ranks of wireless carriers in pockets of Asia and Europe that have committed to deploying NFC starting next year.
In a joint venture dubbed Isis, Verizon Wireless, AT&T Inc. and T-Mobile USA are working with Discover Financial Services and Barclays PLC in the U.K. to roll out a mobile payment network, using NFC, in certain markets within the next 18 months.
Although left out of Isis, financial giants Visa and MasterCard have been dabbling in their own mobile payment trials for about two years.
Visa, with mobile payment technology firm DeviceFidelity, has run pilots with removable MicroSD cards equipped with NFC that leverages its PayWave program. MasterCard has done similar pilots with its PayPass program via NFC tags in the form of stickers.
Other industries have started committing to NFC as well. Assa Abloy, the world's largest lock supplier, recently launched a pilot with a hotel chain in Sweden in which guests can check in, enter their rooms and check out all through an app on their NFC-enabled phones.
"This is not rocket science," said Tam Hulusi, senior vice president of HID Global, a business unit of Assa Abloy. "The rocket science is getting all these people to talk to each other."
Barriers and hurdles
Credit-card fraud is a top concern for Americans. For many, the thought of keeping all their card information on a mobile phone is unsettling, especially when the action of swiping a physical card isn't considered laborious.
But experts say if stakeholders properly educate consumers and retailers, privacy concerns over NFC will dwindle and its ease of use will drive demand.
Payment systems using radio frequency ID, or RFID, have raised security concerns in the past because the wireless broadcasting range in which it transfers data is relatively large. However, NFC by definition is a short-range wireless technology, and therefore is inherently more secure, Peabody of Mercator said.
Also, unlike magnetic strips on the backs of plastic cards, payment credentials change with every transaction using NFC, he said.
"Because they're unique and not static, they're not useful and can't be reused," Peabody said.
In addition to uniqueness, he said, NFC-enabled handsets will have multiple security layers, such as pin codes now and eventually voice and finger recognition for authentication.
But what if the phone is lost or stolen? That hasn't been worked out quite yet, he said.
"We're going to need to have a way to wipe or kill a phone and then consumers are going to need to know how to do that," Peabody said. "That could be one thing the Isis venture could bring to the market."
Phones will also have to be replaced within a shorter time frame, and there needs to be some form of an external back-up system that restores an individual's content to the new phone, he said.
Although the technology itself is ready for deployment, the final issue is getting other industries to play nice.
"The business relationships between mobile operators and financial institutions still haven't been worked out," said Vanderhoof of the Smart Card Alliance.
U.S. carriers want a share of the debit and credit card transaction fees charged to merchants, which means financial institutions either have to raise those fees - and risk losing clients - so they don't lose revenue, or take the loss to keep customers, he said.
Isis plans eventually to welcome other carriers and banks into the venture, but Vanderhoof said that still could exclude the banks that don't agree to its terms. And if the NFC chip is embedded into the phone, the consumer could be restricted to which bank it uses for mobile payments.
"But consumers don't want to be limited to what they can use," he said.
Some financial institutions have already found a way around this is by offering NFC-enabled removable SIM and MicroSD cards, such as what already have been seen through pilots launched by Visa and MasterCard. This year, Visa also extended its program to the iPhone via a case equipped with a slot for its MicroSD card. These types of situations all will work themselves out eventually, and in the end, it only gives consumers more options, said Rosenberg of Narian.
"At the end of the day competition will drive the compromise," he said. "Consumers will only benefit from this."
How NFC might affect your world
Near Field Communication offers new revenue-generating opportunities and easier ways to reach and serve consumers. As with any new technology, issues can arise when changing from an old way of doing things. Here is a look at the potential impact in four sectors.
Retail: Retailers aren't likely to see reduced debit- and credit-card transaction fees by financial institutions anytime soon. They're hoping for added value by using NFC in their retail locations. And as smartphones make huge strides in popularity, NFC can offer more effective, efficient ways of making sure coupons, advertisements and loyalty cards are reaching and being used by customers.
Health care: With NFC, the health-care industry could more closely track when care providers check in and out with patients, store methods of treatment and even expand ways to monitor patients remotely. When arriving at a health-care facility, patients also could authorize medical records and insurance information via their NFC devices instead of filling out paperwork.
Public transportation: Tickets would be digital, which would cut the cost of buying, storing and distributing paper tickets - and be more eco-friendly. Lines at ticketing kiosks would move faster, and passengers could tap their NFC phones to a smart poster to know what terminal to go to and at what time.
Building security: Security systems at business establishments and residences could be more easily controlled and offer more flexibility. With NFC handsets acting as key cards, employers and residents could deactivate or update one's credentials almost immediately over the air. They could monitor the locations of people throughout the premises and give visitors temporary access.
Firm finds receptive investors in Phoenix
Narian Technologies, and application developer and consultancy firm in Miami, has been thinking about NFC and its possibilities for nine years. The company has more than 280 open-platform NFC apps in the works that are geared toward about 15 unique markets, ranging from health care to restaurants. Einar Rosenberg, chief technology officer, said he has hardly any competitors because other entrepreneurs have focused primarily on mobile payments.
All but one of Narian's investors have been from Phoenix, accounting for 90 percent of investment dollars since 2001. Rosenberg wouldn't disclose their identities, but he said each is a high net-worth individual from occupations ranging from construction to accounting. None has a background in technology, he said.
Narian's relationship with Phoenix came by coincidence when Rosenberg was seeking capital for the first round of funding in 2001. A money manager of wealthy individuals suggested Rosenberg meet with his client, who happened to be a Phoenix native. The investor agreed to half of the initial round and then got others in Phoenix involved for the second and third rounds.
Rosenberg said each round has raised about $1 million. Narian is close to raising a fourth round - with more Phoenix investors - to pilot and launch a handful of NFC apps by the end of next year.
by Kristena Hansen The Arizona Republic Nov. 25, 2010 12:00 AM
Handheld devices only get smarter