Near future of near field

Monday, December 3, 2007 Labels:

Your pants pockets may soon be obsolete.

Or a few of them, at least, if near-field communication (NFC) catches on. The technology would let you store a lot of what you keep in your wallet — most significantly credit cards and cash — on your cell phone.

Near-field communication is a simple technology that transfers small amounts of data via radio frequency identification (RFID) transponders. It's similar to technology used in contactless credit cards such as MasterCard's PayPass or Esso's Speedpass. The difference is that NFC will follow industry-wide standards, which would allow devices universal access instead of just at specific stores or gas stations. A group called the NFC Forum — a partnership between Sony, NXP, Microsoft, Visa, MasterCard and more than 110 other companies and organizations — is in charge of setting NFC's standards.

Justin Oberman, a New York-based new media consultant, heard about an NFC trial in New York City from a friend who worked at Citibank. There have been similar trials in different markets across the world to test the technology and gage consumer's reactions. This particular trial was a partnership between Citibank, MasterCard, Cingular (now AT&T) and Nokia.


Enlarge ImageCellphones equipped with specialized RFID transponders may one day replace credit and bank cards. (Philips)

After signing up online, Citibank sent Mr. Oberman to an unveiling in Bryant Park. Clerks gave him a new phone. At another spot they took his SIM card from his old phone and put it in the new one and then sent text messages that linked to sites where Mr. Oberman could download software and register with his bank. Scattered around the tent they had set up were "smart" objects that worked with the phone. Tapping a movie poster accessed the movie's trailer. Tapping the Citi display downloaded the bank's commercial.

An NFC chip costs about $2 U.S. and can be attached to almost anything. Cellphones, however, are proving to be the device of choice. "We did a number of surveys and focus groups with customers basically investigating which options [they] would be comfortable with, interested in, to make a payment," says Simon Pugh, MasterCard's senior vice president of infrastructure and standards for advanced payments solutions. "Number one was the card, not surprisingly. But number two was the mobile phone." Other options MasterCard investigated were keys, watches and handbags.

In May 2006 ABI Research predicted 50 per cent of cellphones -- 500 million of them -- would be NFC-enabled by 2010 because of its wide range of applications. But wireless operators have been hesitant to buy into the concept until clear revenue-generating models are established. In September 2006, ABI downgraded its prediction to 30 per cent by 2011. Last April they further downgraded their forecast to 20 per cent of the worldwide market by 2012 — 292 million handsets.

"We're in a bit of a chicken and egg situation at the moment, to be honest," says Mr. Pugh. "The mobile operators are deciding when to ask the manufactures to build commercial quantities of the products. The manufacturers are sitting, waiting for commercial orders. The banks are saying: 'we're keen on doing this but we don't see them commercially available yet.' So all of the entities are sort of circling waiting for someone to move."

To cope with the problem MasterCard has followed a "cards first" strategy, using their contactless PayPass cards, in part, as a stepping stone to NFC phones. The technologies are very similar, but PayPass doubles as a traditional credit card. This gives consumers the option to treat it like a traditional credit card and test the new technology at their leisure. At the same time, it puts an infrastructure in place for NFC-enabled phones and familiarizes consumers with the concept.

"I think the biggest issue that they'll have to overcome if they want to see broad acceptance is around security," says Chris Ziegler, associate mobile editor for the technology blog Engadget. "A lot of people are concerned that it's going to make it extremely easy to steal your credit card information."

To deal with security concerns phone manufacturers offer customizable features that require users to authorize transactions by typing a PIN into their handsets. Credit card companies typically offer the same security and liability limits as they do with their other contactless products (PayPass, ExpressPay, etc.). And the encryption of the transmitted data itself is quite robust. But consumer fear sometimes has little to do with a technology's actual specifications — it may be a PR battle rather than a technical one.


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