Buzz
Near-field communication enables users to redeem coupons and make payments via their smartphones.
Photo courtesy of VivoTechOn your way home with some errands to complete, your cell phone is all you need. After leaving work, you head to the train station and tap your phone on an NFC reader to pay for your fare. While waiting on the platform, you spot a movie poster that catches your eye. A quick tap of your phone on the NFC tag downloads information about the film, including showtimes and a website link to purchase e-tickets.
At your next stop, the bookstore, you use your phone to apply a discount coupon and pick up a DVD. Afterward, you head to the dry cleaners, tapping your phone again on the NFC reader to settle the bill.
Your final destination is your favorite restaurant for carryout. You sent in your order by text, so the meal is ready when you arrive. A quick tap of your phone on the reader, and you’re all set to enjoy a relaxing dinner at home with that new DVD.
The concept of cellular electronic payments in this scenario may seem ahead of its time, but consider the following:
- TheTrainLine, a UK-based train ticket retailer, is testing a smart-ticketing system that lets passengers link train tickets to NFC-enabled cell phones like the Nokia 6131. Tickets are purchased online through a mobile phone or PC, and at the station, the passenger taps their phone on a mobile reader to pay for the fare [source: Silicon.com].
- McDonald's Holdings Japan has introduced a discount coupon program for NFC-enabled cell phone users, who already use cellular payment systems for train tickets, store purchases, and meals. With this program, users can easily receive, select, and download coupons, speeding up their transactions by 10 times. Over 40 million Japanese people have NFC-enabled phones, which were first released in 2004 [source: RFID Journal].
All of this might lead you to ask: How do electronic payments work via cell phones? How widespread is this payment method? And what security concerns should be considered? Keep reading to find out, beginning with the technology behind mobile electronic payments.
Mobile Payments and Contactless Technology
To make a payment with a cell phone, users simply hold it up to a card reader.
Photo courtesy of VivoTechNear Field Communication (NFC) is the core of cellular electronic payments, so any discussion of mobile payments must begin here. But what exactly is NFC? It's a short-range wireless technology that enables devices to communicate with one another, such as for making a cellular payment. Using a short-range radio frequency, an NFC reader can extract data from a tag or device placed close to it [sources: Nokia Europe and NFC Forum].
It functions similarly to radio frequency identification (RFID) technology, which is used in wireless inventory tags, contactless credit cards, and transit passes that can be tapped against a reader. Both NFC and RFID transfer data through inductive coupling. This process occurs when a conductor, like a wire, moves through a magnetic field, generating an electric current in the wire.
A cell phone equipped with NFC has a chip containing a coil of wire. The payment station, or reader, generates a magnetic field and contains its own coil of wire. When the phone is brought within a few inches of the payment station, an electric current flows between the coils, triggering data-carrying radio waves to transfer between the devices.
However, NFC goes beyond what RFID solutions can do, making it especially valuable for electronic payments. NFC enables two-way communication, allowing the payment station to send information such as discount coupons or engage in a back-and-forth exchange with the chip in the phone. This added functionality also enhances security. For example, the pay station can request account information from the chip, which could prompt the user to enter a password on a keypad. The devices can maintain the connection until both account and security data are provided, allowing the transaction to proceed.
Feeling ready to give it a shot? Experts predict rapid growth for NFC technology, with forecasts suggesting that the number of annual mobile electronic payments will quintuple by 2013. Mobile phone users are expected to spend over $300 billion globally each year on digital goods (like music, tickets, and games) and physical items (such as gifts and books).
There are a few hurdles to overcome. The first is the requirement for a cell phone with an NFC chip. If you're in Japan, that's no problem. These phones are becoming more common in Europe as well. In fact, the Far East and Western Europe are projected to account for 60 percent of global cellular electronic transactions by 2013 [sources: Juniper Research].
However, NFC-enabled phones are not expected to be available for purchase in the United States until at least 2009. They have been tested in pilot programs, such as for ticketing on the Bay Area Rapid Transit System in San Francisco, with the MasterCard PayPass system in Chicago, and with 600 merchants in New York accepting PayPass, including at a subway line [sources: MSNBC].
Though consumer feedback has been positive, retailers such as stores, restaurants, sports venues, gas stations, and other establishments need to recognize the value of cellular electronic payments and install NFC technology, while adapting their systems to work with NFC-enabled cell phones.
Aside from hesitation to adopt cellular electronic payments, many merchants are unprepared. M.V. Rajamannar, executive vice president of CitiGroup's Citi Brands, estimated after a New York City study that only around 40,000 of the nation's 6 million merchants were equipped with contactless readers [source: Card Technology].
Despite their convenience, cellular electronic payments face considerable criticism. Learn more about the concerns raised on the next page.
Safety Issues with Mobile Electronic Payments
Image provided by VivoTech Security has been a major concern regarding the use of cell phones for payments.
Image provided by VivoTechOne way to view mobile electronic payments is to consider your phone as a digital wallet, eliminating the need to carry physical credit cards. While this might encourage you to keep your phone secure, how safe is each mobile payment transaction?
Supporters argue that these transactions are very secure, highlighting the following points:
- The card and reader must be in close proximity during the payment, which makes it impossible to steal data from a distance.
- Transactions without identity verification are typically capped at small amounts, like $25 or less, limiting the gain for cybercriminals.
- Encryption prevents unauthorized individuals from intercepting sensitive information during the wireless transfer.
- One-time transaction codes further enhance security.
- NFC's "read-write" feature enables the payment station to request a PIN for identity verification before proceeding, providing additional protection not available in traditional contactless RFID systems [source: Laptop].
Mobile carriers and app developers are continuously seeking ways to enhance the safety of cellular electronic payments. Cellular South has experimented with biometric authentication for its Wireless Wallet phone, using a fingerprint scanner to verify identity, removing the need for a PIN or passcode [source: Cellular South].
Infineon Technologies, a German chip manufacturer, has created a high-security flash microcontroller that is built into the SIM card of NFC-enabled phones. This microcontroller acts as a firewall, safeguarding financial data during transactions [source: Infineon].
The NFC Forum, a nonprofit trade organization, is actively addressing the security and privacy concerns surrounding mobile payments. The forum's privacy advisory council was established to tackle consumer worries.
Despite security concerns, many users who have participated in pilot programs say they would prefer to keep using NFC-enabled phones for mobile payments. For instance, more than 75 percent of participants in Cellular South's three-month Wireless Wallet trial were satisfied with their payment experience, and 87 percent expressed interest in using the phone once it becomes available [source: Cellular South].
In New York City, 84 percent of participants in a pilot program by AT&T, CitiGroup, MasterCard, and Nokia said they would like to continue using the Nokia phones for payments. While it’s unclear when the Wireless Wallet and similar devices will be available in stores, some customers are eagerly waiting [source: Laptop].
