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Know What NFC Is? Mobile Payment Systems Defined

Chris Allen

Near-field communication—more commonly known by its acronym NFC—allows two devices equipped with NFC chips that are placed close together or touching to exchange data. Near field communication is quickly becoming a new type of secure mobile payment that is accepted at enabled POS terminals. Many major US retailers already have NFC-based contactless payment terminals in place, which will ease the transition to wider NFC adoption for the general public.

NFC explained

The payment application and account information are stored in a secure area of your customers’ smartphone. The phone then uses NFC technology to communicate with your contactless payment terminal. There are two main types of NFC:

  • Two-way NFC. In this technology, two devices that both have the ability to read and write to each other exchange information. An example of two-way NFC would be two smartphones that exchange contact data when touching.
  • One-way NFC. In this technology, one device such as a phone, credit card reader or commuter card terminal reads and writes to an NFC chip.

Compared to Bluetooth technology, NFC uses far less power to transmit, which will become increasingly important as consumers rely on their smartphones to complete more daily tasks such as phone-as-digital wallet. What’s more, NFC chips contain residual power so they’ll continue working for a while even after the device’s battery has died.

There are a wide variety of smartphones and other devices that support NFC technology, including iPhone 6 and 6 Plus. Check out the current list of phones that support NFC technology for more information.

Security concerns around NFC

For consumers who have been slower to adopt contactless payments technology, the biggest concern is often security. However, using a phone as a mobile wallet is pretty much just as secure as using a credit or debit card. In fact, the mobile payments structure of NFC is so complex that any hacking or intercepting is extremely difficult. Here’s how processing a transaction using NFC works for you and your customers:

  • Customer launches payment application on the smartphone.
  • Customer taps phone on the terminal and a connection is made using NFC.
  • Customer is prompted to verify payment via fingerprint (biometric) identification or by entering a preset passcode.
  • Transaction is validated using a separate chip called the secure element (SE).
  • If authorized, the SE relays the authorization back to the NFC modem.

From there, the transaction completes processing just like a credit card swiped transaction, traveling from the terminal, across the network and to the bank for payment. The most important part of the NFC mobile payment transaction is the SE, which holds all of the authorization power. In other words, the transaction has no chance of being authorized or submitted if the SE does not approve it. The SE is tamper-proof and protected by a unique digital signature.

The Future of NFC

As more consumers become familiar with and accustomed to the convenience of using their phone to make everyday purchases, the more the popularity of use of NFC payments will grow. The fact that NFC mobile contactless payments can be used at both attended POS locations—such as retail stores—as well as unattended locations—such as vending machines—will only add to their popularity. The NFC Forum website provides more information on how NFC is used and will be used in payments processing.

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