NFC: A technology in search of a problem?

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According to a report from IHS, contactless payments could be about to receive a significant boost, with global Near Field Communication (NFC)-enabled handset shipments set to soar four-fold in the next five years.

To date NFC payments have struggled to take off as a mainstream technology, so will the sheer increase in NFC-enabled handsets be enough to win consumer hearts and finally push this ‘wave and pay’ payments solution into widespread mainstream use across Europe? Or is NFC providing a solution to a problem that doesn’t exist? – writes Bernhard Lachenmeier, Head Strategic Marketing & Partnerships, SIX Payment Services.

Fear of the unknown

Security fears among consumers are one the most significant barriers to wide-spread adoption of contactless payments. Largely, these fears stem from a lack of understanding of the technology, with consumers fearing that payments can be taken from long distances – a myth that has been fuelled by high profile press coverage.

Understandably, shoppers are wary of spending money across unfamiliar platforms and it is therefore important to educate consumers on using contactless payments. Yet, those best placed to provide education at the point of sale are often unsure of the system themselves.  Cashiers are the first port of call for customers with payment queries, however many shop assistants are not given sufficient background of the system to provide support to shoppers.

Other security concerns relate specifically to contactless payments via smartphones, and the potential risks of carrying sensitive payment data on a mobile device. However, according to a report by Juniper, consumer confidence could be boosted by the imminent arrival of HCE (Host Card Emulation). HCE transforms an app into a virtual smartcard, so that for NFC transactions, the SE (secure element), where all the card holder credentials are stored, no longer has to be physically present in the handset.

Doing the right deal

Smartphone-enabled contactless payments have been particularly slow to gain traction, as they rely on cooperation between credit card companies, banks, mobile manufacturers and mobile networks.

Notably, Apple does not incorporate NFC technology into its iPhone devices, which excludes a number of consumers from smartphone-enabled contactless technology. However, Juniper’s study also claims that it is looking increasingly likely that Apple will introduce an iWallet in Q4 2014, which enables secure contactless payments via BLE (Bluetooth Low Energy) and a second air interface.

Although this bypasses NFC technology, the report argues that Apple’s entry into proximity payments could drive growth in the wider contactless space by increasing consumer awareness of the mechanism, indirectly benefiting adoption of NFC.

Moreover, Visa has teamed up with a number of mobile operators to rollout NFC payments, including Vodafone in Spain, Germany, Netherlands, UK and Italy; Orange in France and Telecom Italia in Italy. MasterCard is also getting involved with the contactless movement, teaming up with Deutsche Telekom, Telefónica Deutschland and Vodafone in Germany for contactless payments.

While increased handsets alone may not be enough to boost NFC into the mainstream, a combination of increased security awareness, operator deals and the actions of notable handset manufacturers could be the push it needs to take off. With the right education for consumers and cashiers, the next few months could prove critical for contactless technology.

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