NFC Technology: The Good, the Bad, and the Future

Near Field Communication (NFC) has recently experienced a surge in popularity thanks to wireless payment systems and aggressive advertising from smartphone manufacturers. Commercials showcasing NFC’s speed and accessibility show consumers holding their smartphones near NFC terminals to pay for goods and services without ever having to open their wallets.

While NFC technology has been around for just over a decade, its growth was slow initially, particularly in the United States. Since the introduction of the first NFC-enabled smartphone in 2010, the technology has steadily been gaining momentum. Mobile NFC-based payment apps such as Apple Pay, Android Pay, and Samsung Pay have exploded onto the market, and consumers are beginning to come around to the idea of contactless payments.

NFC technology works by encoding information on a special microchip called an NFC tag. The tag stores information that can be transmitted via Bluetooth to other devices equipped with the technology. NFC technology was introduced in 2006, and it has been widely used in Asia and Europe for years. However, it is just beginning to catch on in the US.

Pros – Convenience, Security, and Simplicity

Image courtesy WikiMedia

The convenience of NFC is arguably its biggest draw, and consumers who’ve adopted the technology like the flexibility of paying without ever having to pull out their credit card. For those who have NFC-enabled devices but don’t use them, security is a real concern. Those with reservations about NFC technology may feel that their data is vulnerable to hackers or other outside sources. Smartphone manufacturers such as Apple and Samsung have emphasized that their respective payment systems have a high level of encryption, and even they are unable to see a user’s credit card information. Instead, each user is classified with a unique identifier that is specifically tied to their encrypted data.

In addition to individuals, businesses can benefit greatly from adopting NFC technology. Since mobile wallets are encrypted, retailers with NFC payment terminals can offer their customers a level of security that alternative payment methods cannot. For example, the Apple Pay smartphone application encrypts credit card data and adds an extra layer of security if a user chooses to use fingerprint security. This ensures that only the intended user can use Apple Pay to make payments and comes in handy should the phone ever be lost or stolen. Customers do not have to worry about merchants having their actual credit card number on file, as all of their information remains encrypted in their smartphones.

Cons – Vulnerability of Information, Availability, and Ease of Use

Proponents of NFC technology swear by its safety and insist that using it is the safest way to pay. Unfortunately, criminals are usually one step ahead of technology, and they spend a lot of time figuring out how to steal sensitive data. Card skimming is one of the most widely known ways for criminals to access credit card information just by standing close to the victim. NFC technology makes stealing credit card information even easier than skimming because the NFC signal emitted can be intercepted from several feet away, even with mediocre interception devices.

Image courtesy B Rosen | Flickr

Any NFC-enabled device can be compromised if an NFC reader is nearby. A criminal does not need to be within arm’s reach of a victim to steal his or her credit card information. This is the one of the main reasons why NFC skeptics avoid this technology.

While no payment method is 100% safe and secure from the prying eyes of hackers, NFC is in fact more secure than traditional payments, particularly the old-school magnetic stripe cards that are gradually being replaced with embedded chip cards. America seems to be lagging behind in payment security in comparison with Europe and other countries, but with recent banking security breaches, security is important now more than ever before.

Going Forward – What the Future Holds for NFC Technology

What else is NFC used for other than paying wirelessly at a retailer? In 2011, global payment processor PayPal implemented technology that allows account holders to send money from one NFC-enabled smartphone to another. This is a major way to facilitate peer-to-peer transactions, such as splitting a bill at a restaurant or paying back a personal loan without the hassle of going to the ATM or carrying cash.

In to further simplify things, merchant loyalty cards can be stored in each phone’s mobile wallet. As a result, consumers have fewer cards to keep track of, and they can redeem them for valuable savings. Retailers can gain valuable insight into customers’ buying patterns and increase mobile marketing efforts. Southwest Airlines and Ticketmaster have already implemented NFC-enabled ticketing, which saves time and paper. NFC is exciting technology that has a lot of untapped potential, but it’s still unclear just how long it will take to catch on with the masses.