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What is NFC and Why Should You Care?

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Contactless payment. Female hand holding mobile phone. NFC technology. Retro style illustration.

When Apple announced its new Apple Pay feature in September 2014, it was easily one of the most exciting developments in mobile payments in years. By using NFC, Apple essentially enabled iPhone 6 and iPhone 6 Plus users to ditch their wallets and go digital (at least, for some purchases).

But what is NFC? And what does it mean for you? Let’s take a look at this technology and all of its implications.

What is NFC?

NFC stands for “Near field communication.” Small chips create a link between two devices to transmit data. Like Bluetooth, Wi-Fi, and RFID, it’s a wireless technology, and you’ll see that the technologies are closely related, particularly where mobile devices are concerned. NFC actually evolved from RFID and uses radio waves to transmit data.

NFC actually takes on three forms:

  • Device-to-Device
  • Card Emulation
  • Tag Reader and Writer

We’ll take a closer look at all of these forms in a bit. But first, let’s talk about how NFC fits in with other mobile tech.

Unlike 4G, Wi-Fi, or even Bluetooth, NFC is short range. Devices need to be within a few centimeters of each other (less than 2 inches). Like Bluetooth, you don’t need to pay any extra fees to use it.

NFC has some major advantages over Bluetooth. First, it requires far less energy. Since NFC can be one-way or two-way, you don’t always need a power supply for both components. (We’ll get into that later.)

If you’ve ever dealt with the hassle of trying to pair Bluetooth devices, take heart. Pairing devices with NFC is also far simpler. Just tap the devices together.

NFC can also transmit data faster than Bluetooth, which makes it ideal for mobile payments.

Device-to-Device NFC

With Device-to-Device NFC, you can exchange files between two devices. That includes photos, videos, and even contact information. Samsung has been using NFC in its phones since it launched the Galaxy S II (though it was only on select models; the S III saw NFC become standard).

NFC and Bluetooth (and Wi-Fi Direct) actually play nicely with each other, so it’s possible to use NFC for pairing and Bluetooth or Wi-Fi Direct for the actual data exchange. Android Beam uses NFC and Bluetooth, while Samsung’s S-Beam uses NFC and Wi-Fi Direct.

In fact, NFC is how most smartwatches now pair with smartphones. That includes Sony’s Smartwatch 2, the Samsung Galaxy Gear, and yes, the Apple Watch. You can even use NFC for pairing phones with Bluetooth speakers or printers.

Card Emulation

Card emulation is probably where NFC shows the most promise. It’s the driving force in mobile payments, used in both Apple Pay and Google Wallet. The concept is the same as other “contactless” cards. You just bring your phone into range to complete the translation with a tap.

With GSM phones (AT&T, T-Mobile and a few other carriers), your SIM card becomes a “secure element” that identifies you and protects the information. A separate “smart card” chip can also be used to secure the transaction in phones using CDMA (Verizon and Sprint).

Tag Reader and Writer

Remember how NFC chips don’t require power supplies for some applications? That’s what we mean here. It’s possible to place small stickers with NFC chips on printed materials and other surfaces. Your smartphone would then be able to read the “tag.” It could open up a trailer if you scanned a movie poster, or generate a coupon for you if you passed a display in a store. Sure, the concept is similar to a QR code reader, but smartphone cameras use a lot more battery juice than NFC.

How Do Mobile Payments Work with NFC?

Let’s take a closer look at both Apple Pay and Android Pay (formerly Google Wallet), both of which use NFC in mobile payments. Google Wallet came first, but it never really found its foothold. Then, Apple launched its own NFC payments app, Apple Pay, in 2014. In 2015, Google announced Android Pay, and rebranded Google Wallets as a peer-to-peer payments app in the same vein as PayPal.

To use Apple Pay on a smartphone, press your finger to the Home Button (your phone uses TouchID to verify your identity). As you pass your phone over the contact-less reader it completes the transaction. You can also use an Apple Watch to complete Apple Pay transactions. Apple Pay is accepted more than 1 million store locations. You can check out the list of companies here.

To use Android Pay, your smartphone has to be running Android 4.4 (KitKat) with NFC. Simply unlock your phone (the lock screen must be enabled) and tap the phone to the terminal. Android Pay is accepted anywhere Apple Pay is — basically any retailer that has an NFC-enabled terminal. You can find the list here.

The Catch

Complicating this matter (at least at the time of writing this) is the alternative mobile payment being developed by retailers. It’s called CurrentC, and it’s the brainchild of the Merchant Customer Exchange, which includes businesses such as Walmart, Michaels, 7-Eleven, and even Southwest Airlines. Those same retailers, despite having the capability to accept Apple Pay or Android Pay, are refusing to.

CurrentC doesn’t use NFC. Instead, it generates a scannable barcode on the screen of your phone. The payments are deducted directly from your bank account.

On the plus side, it’s so basic almost any smartphone supports it. Since payments go through bank accounts, it also saves merchants quite a bit of money on fees.

On the other hand, the app also potentially gives retailers quite a bit of data about you, and privacy issues naturally abound.

At this point, only time will tell which mobile payment option is going to come out ahead. But with Apple finally throwing its weight behind NFC, and now Android Pay widely available to the Android user-base, mobile payments seem to be poised for an explosion in popularity.

As a small business, you are in a good position to become one of the forward-thinking NFC merchants in your area that accept ApplePay and other types of mobile business.

Do you already accept a form of NFC payment? Or are you looking for a point-of-sale system that will let you accept NFC? Let’s chat in the comments!

Melissa Johnson

Melissa Johnson

Melissa Johnson has been writing about payment processing and mobile payments since 2014, and has been quoted in articles for Credit Karma and The Next Web, among others. She graduated from The University of Kansas in 2010 with bachelor's degrees in English and journalism.
Melissa Johnson

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    Comment – Does this technology give the not so savy person on opportunity to steal your information right off of your phone or Android Wearable Device without you knowing it? Yes I saw the comment that the device needs to be two inches away but with Blue Tooth it is a bit further. I would think that a good tech would come up with a reader in the future that would read someone’s device or wearable with a bump or a shove and no one would be the wiser. Is there any type of prevention?

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