What is NFC

Near Field Communication (NFC) has become a more common term in the payments industry over the last few years because it’s the technology behind mobile payments. But what exactly is NFC and how does it work? Let’s start with a definition, and then we’ll get into seven things to know about accepting NFC payments. 

What is NFC and how does it work?

NFC is a method of wireless data transfer that allows smartphones, laptops, tablets, and other devices to share data when in close proximity. NFC technology powers contactless payments via mobile wallets like Apple Pay, Android Pay, as well as contactless cards.

NFC is similar to radio-frequency identification (RFID) technology, but is limited to sharing data with other devices that are within about four inches. That’s why a consumer paying with their mobile wallet must place their device close to the contactless payment reader.

NFC is also similar to Bluetooth technology, but differs in that NFC doesn’t require device discovery or manual syncing like Bluetooth. It also uses less power than Bluetooth.

NFC can be used three different ways:

Peer-to-peer: Two NFC-enabled devices can establish a connection and share data

Read/write: An active device, such as a phone, picks up data from a passive device, which does not have the capability of reading information itself

Card emulation: An NFC device can be used like a contactless credit card

The third use is the one that is most applicable to merchants because it allows for the acceptance of mobile wallet payments— which is our focus here.

FACT #1: Accepting NFC payments is easy and convenient

When EMV chip cards first came out, one of the concerns was the introduction of a new step in the checkout process. The process of “dipping” (and waiting) was a little awkward for consumers at first. Regardless of how long it actually took, consumers felt like the dipping process took longer.

Jump ahead to contactless mobile payments, and voilà— consumers can skip the dip. For smaller transactions, contactless payments can skip the swipe, sign, and PIN as well. Contactless payments typically take less time than chip card transactions. And since consumers usually hate to wait, even for seconds, less time per transaction means happier customers.

Digital wallets are a natural extension of the trend of the smartphone to become an all-in-one device that meets the modern consumer’s every need. The prospect of that consumers leaving their wallets behind and carrying only their smartphone to pay for purchases, is convenience in action.

FACT #2: Mobile payment technology is designed to be stable, safe, and secure

Like EMV chip cards, mobile wallets are more secure than magnetic strip cards. While a phone is still vulnerable to theft, as long as the passcode or biometric protection has been activated, the device will be virtually useless to thieves.

With mobile wallets, a consumer’s payment data is exposed only once, when the card information is entered into the mobile wallet. This information is then encrypted, so that every time the consumer taps their mobile wallet for payment at an NFC enabled terminal, “virtual” payment data (meaning not real card information) is sent from their phone to the payment device. The full card number is not exposed. When this virtual data is passed to the payment terminal, it’s often immediately encrypted by the merchant’s payment processor using Payment Card Industry (PCI) validated methods.

To summarize, data involved in an NFC mobile wallet transaction has two layers of protection: 1) the device itself, and 2) data encryption. If you think about it, this is a lot safer than carrying around a physical card which could easily be stolen and used.

FACT #3: Paying by smartphone is the new consumer normal

The explosive growth in mobile technologies may drive new consumer expectations, which are higher than ever. Whether you call it the “Amazon effect” or something else, what smart merchants are learning is that whatever any given consumer considers the “best” level of price and service, that’s what they expect from every merchant.

Futurists, cartoonists, and movie makers have long offered many versions of what commerce might look like a century from now. Today’s reality is in many ways beyond what even the most progressive thinkers imagined. Consumers across the globe have demonstrated not only their comfort with mobile payments, but their insistence on having every available option at checkout. Paying by smartphone is, simply, the new consumer normal.

FACT #4: Accepting mobile payments often deepens customer engagement

Merchants and consumers are on the same page when it comes to payments: both want transactions to be fast, easy, secure, and convenient. Beyond the clear benefits of increased ease of use and enhanced security, accepting mobile payments helps build and maintain a trusted link with customers.

Merchants also benefit from NFC because it provides an opportunity to more effectively integrate customer loyalty programs into payment processing. For example, customers can redeem a coupon immediately with the tap of their phone.

NFC loyalty programs can also help merchants gather useful analytics on their customer base and locations. Based on where coupons are used, merchants can determine most profitable times of day, or the locations that receive the most traffic.

FACT #5: The future is commerce-on-the-go, and the future is now

Commerce-on-the-go is the new reality. The smartphone is an ambassador of convenience and universal translator in a world of mobile commerce. It’s time for retailers to seize the moment and create consistently amazing experiences that delight customers.

Consumers hate to wait, and they hate lines. They value speed and personalization. Accepting mobile payments addresses key customer pain points and opens doors to deeper levels of engagement. The ability to pay by smartphone can make customers happy. Happier customers are often more loyal customers. Happier customers can help fuel the success of your business.

Fact #6: Payments under an “honor-all-wallets” scenario

Businesses that accept card payments are no doubt familiar with the card network’s “honor-all-cards” policy, whereby merchants that accept one type of major branded credit card must accept all brands.

With the rush toward accepting mobile payments, there have been rumblings from the card networks about an “honor-all-wallet” policy that would work in a similar fashion. Such a rule would force merchants that accept mobile wallets, like Apple Pay and Android Pay, to accept any type of card network-branded mobile wallet.

Merchants take issue with the potential rule for obvious reasons. Imagine if Walmart, for example, was forced to accept an Amazon Pay payment, or Target had to accept Walmart Pay? A chief concern is the potential for non-bank wallet providers (which could include competing merchants) to view the transaction data and use that information to steal customers. 

Still, at this point, the point is somewhat mute. So far, no official policies regarding honor-all-wallets have been released by Visa, Mastercard, American Express, or Discover.

Fact #7: NFC equipment is priced right for small merchants

To accept mobile wallet payment, merchants need a payment terminal and reader that are NFC-enabled, and a payment processing plan that accepts mobile wallet payments. Plenty of options are available. In the US, 88% of all POS terminals shipped by the end of 2017 had NFC capability, and NFC-equipped POS terminals are forecast to reach 112.3 million globally by 2022. 

NFC readers and terminals are usually also priced right for the small business merchant. Costs range from as little as $49 for a simple NFC reader, to $149 or more for a terminal that also reads chip and magstripe cards.