What is the short range two way communication technology behind contactless payments?

What Is Near-Field Communication (NFC)?

Near-field communication (NFC) is a short-range wireless technology that makes your smartphone, tablet, wearables, payment cards, and other devices even smarter. Near-field communication is the ultimate in connectivity. With NFC, you can transfer information between devices quickly and easily with a single touch—whether paying bills, exchanging business cards, downloading coupons, or sharing a research paper.

Key Takeaways

• Near-field communication (NFC) is a short-range wireless connectivity technology that lets NFC-enabled devices communicate with each other.
• NFC began in the payment-card industry and is evolving to include applications in numerous industries worldwide.

Understanding Near-Field Communication

Near-field communication transmits data through electromagnetic radio fields to enable two devices to communicate with each other. To work, both devices must contain NFC chips, as transactions take place within a very short distance. NFC-enabled devices must be either physically touching or within a few centimeters of each other for data transfer to occur.

Because the receiving device reads your data the instant you send it, near-field communications (NFCs) greatly reduce the chance of human error. Rest assured, for example, that you cannot purchase something unknowingly because of a pocket-dial or by walking past a location that's embedded with an NFC chip (called a "smart poster"). With near-field communication, you must perform an action intentionally.

As with any evolving technology, retailers need time to ramp up their equipment to be able to process NFC transactions; so for now, consumers should still carry cash or payment cards.

In fact, even after NFC technology becomes universal, users may still need to carry a backup payment method; you cannot do much of anything with a device whose battery is drained. Whether this would be a permanent downside to NFC technology, however, remains to be seen.

Near-Field Communication: History

Perhaps near-field communication is best known as the technology that lets consumers pay retailers and each other with their cell phones. NFC drives payment services like Google Wallet (NASDAQ: GOOG) and Apple Pay (NASDAQ: AAPL), for example. Although NFC is not currently present in the Amazon Echo (NASDAQ: AMZN), this is a good example of where near-field communications could be useful. Take wanting to tap-to-pay for a pizza (or anything) that you just ordered through the Echo, for example. 

Near-field communication technology is rooted in radio-frequency identification (RFID), which has been used for decades by retailers to tag and track products within stores. Near-field communication technology began to gain steam in 2004 when Nokia (NYSE: NOK), Philips (NYSE: PHG), and Sony (NYSE: SNE) banded together to form the NFC Forum, a nonprofit organization that's committed to bringing the convenience of NFC technology to all aspects of life. In 2006, the Forum formally outlined the architecture for NFC technology, whose specifications continue to provide a road map for all interested parties to create powerful new consumer-driven products.

Nokia released the first NFC-enabled phone in 2007, and by 2010, the telecommunications sector had launched more than 100 NFC pilot projects. In 2017, New York City's Metropolitan Transit Authority (MTA) phased in a system that enables riders to pay their subway fares with NFC technology; and the rest, as they say, "is history."

NFC: Beyond the Payment Process

With its ever-expanding boundaries, near-field communications have a wide variety of uses beyond simplifying and accelerating the payment process. Today, hundreds of millions of contactless cards and readers worldwide use NFC technology in myriad applications—from securing networks and buildings to monitoring inventory and sales, preventing auto theft, keeping tabs on library books, and running unmanned toll booths.

NFC is behind the cards that we wave over card readers in subway turnstiles and on buses. It is present in speakers, household appliances, and other electronic devices that we monitor and control through our smartphones. With just a touch, NFC can also set up WiFi and Bluetooth devices throughout our homes.

NFCs Offer Near- and Long-Term Solutions

Near-field communications are proving useful in numerous industries and have far-reaching implications.

Healthcare

• Monitoring Patient Stats: NFC opens up new possibilities for home monitoring, as NFC-enabled wristbands can be configured to track patients' vital signs. The patient taps the wristband on a smartphone or tablet, and her medical data is transmitted to the doctor’s office, where a medical professional can check it. With their simple instructions, “just touch,” NFC-enabled devices could let patients of every age monitor their health status autonomously.
• Patient Care-Management: NFC in the hospital setting lets medical staff track where people are, and who’s done what. Staff can know, in real-time, where a patient is, when the nurse last visited, or what treatment a doctor just administered. NFC-enabled wristbands can replace patients' traditional hospital identification bracelets and can be updated with real-time information, such as when a medication was last given, or which procedure needs to be performed when.

Airlines

In 2012, Japan Airlines (OTCMKTS: JAPSY) became the first commercial airline worldwide to allow passengers to tap standard NFC phones to pass through boarding gates in lieu of paper boarding passes. The customer experience in airports that use NFC technology is enhanced significantly, as NFC can shorten the boarding of a 450-person plane to just 15 minutes—a process that normally takes 40 minutes without the use of NFC.

Hospitality, Travel, and Leisure

In the hospitality industry, a hotel may manage building and room access centrally in real-time, without the need for physical delivery of key cards. Using NFC technology, a hotel can send access rights to a guest's room directly to his or her mobile device in advance of their arrival. An NFC hospitality application can include other functions, too, such as booking the room and skipping the check-in phase.

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