NFC Payment Guide: All You Need To Know About Using NFC Technology & NFC Mobile Payments
Our guide on NFC payments explains what they are, how they work, how safe they are, and why your business should accept them.
Near-field communication (NFC) technology has ushered in an era of secure and convenient payment transactions for both consumers and businesses of all sizes. Since Apple’s launch of Apple Pay in 2014, NFC and contactless payment technology have made it simpler for customers to pay with devices such as smartphones and smartwatches.
The appeal of NFC’s convenience factor among consumers is easy to understand. Payments processed using NFC-enabled mobile devices appear to be on course to account for more than $130B in consumer retail purchases worldwide.
But what does NFC mean, and what does it do? If you’re scratching your head, you’re not alone. Despite NFC and contactless payment’s adoption by a larger audience of consumers and merchants, many small businesses, merchants, and retail consumers still don’t know all that much about NFC or what it does. In light of the COVID pandemic and the sudden need for businesses to quickly adopt alternatives to in-person payment processing, though, it’s more important than ever to understand the benefits that contactless payment processing such as NFC can provide.
Read on to discover everything you need to know about NFC technology and why alternative payment options, including NFC, represent the future of contactless payment processing.
Table of Contents
What Is NFC? What Does It Stand For?
What is NFC technology? NFC stands for near-field communication, a technology that lets customers and merchants process payments between two devices that are in close physical proximity to one another.
NFC allows contactless cards like those in your smartphone to make secure transactions and exchange content when they’re near each other or a terminal with NFC capabilities.
How Does NFC Work?
How does NFC work? NFC uses wireless, contactless communication protocols called radio-frequency identification, or RFID, to identify transponder tags attached to other objects, such as card readers and terminals. RFID technology uses a reader with an onboard power source and antenna to talk with and transfer data to a transponder tag.
NFC devices, which are based on RFID protocols, can work as powered readers and transponder tags within short-read range parameters. NFC technology deploys in three different forms: tag reader and writer, device-to-device, and card emulation:
- Tag Reader & Writer NFC: With the tag reader and writer form of NFC, smartphones can read “tags” (small stickers with embedded NFC chips), similar to the concept of the QR code reader that can scan barcodes attached to objects.
- Device-To-Device NFC: Device-to-device NFC allows you to exchange multimedia and digital content, such as photos, videos, and contact information, between two NFC-enabled devices. Samsung, for example, has been using NFC in its phones for nearly a decade. Android has also been using NFC as a standard on all its devices for easier content sharing.
- Card Emulation NFC: Card emulation is a promising area in NFC and a driving force behind modern mobile payments. Digital wallet services (such as Apple Pay and Samsung Pay) use card emulation to secure card data during a transaction without storing or handling payment card numbers on the NFC chip itself.
How To Use NFC Technology
So how do you use NFC technology?
Tag reading and write NFC can be used in many of the same ways as barcodes. This communication is one-way only; one device reads the information, the other broadcasts it but does not receive it. This particular setup isn’t generally used for payments, as the broadcast device doesn’t pick up any card or wallet information from the “scanning” device. You could, however, use it to convey information about a product to a customer, for example.
Device-to-device NFC is generally used for casual data exchange between two devices, but it can also be used to make payments and has been used in Japan this way for quite some time. NFC peer-to-peer payments were a bigger deal around 2010 before we got smartphone apps (such as Venmo and Cash App) that removed the distance factor from phone-to-phone transactions.
Card emulation NFC is the basis of most modern NFC payments. If you buy a terminal or peripheral equipped for NFC payments, it’s probably set up to receive tokenized credit card information from a buyer’s device. This allows the customer to make a secure, contactless payment by putting their device within proximity of your terminal. In the payments world, this type of transaction is colloquially called a “tap.”
What Is An NFC Payment?
An NFC payment is one that uses near-field communication technology to process contactless payments. An NFC payment needs two NFC-enabled devices to be within a few inches of each other to successfully process a contactless payment between a customer and a merchant. An NFC payment is a secure, encrypted transaction that uses card readers and payment devices to exchange data.
Types Of NFC Mobile Payments
In general, merchants and customers can expect to see two different types of commonly used NFC mobile payments: pay app-enabled payments and “tap-to-pay” payments. Check out the following list for more details on each payment type:
- Pay Apps: Most content online or on the web relies on pay apps to process NFC mobile payments. These mobile pay apps (Apple Pay, Samsung Pay, and Google Pay are all popular NFC payment apps) work simply by hovering a device over a card reader that processes payments from customers’ digital wallets. Devices that you can use to pay include phones, smartwatches, or credit cards with embedded chips. Pay apps have grown significantly in importance since the outbreak of the COVID pandemic; it’s become essential for merchants to have a payment processing solution for their customers that doesn’t require physical interaction and isn’t error-prone.
- Tap-To-Pay: Newer “tap-to-pay” NFC mobile payments use credit cards embedded with special NFC chips. These chips allow customers to tap their credit cards against card readers to process low-value purchases, such as those at convenience stores. This type of NFC mobile payment focuses on convenience for quick, inexpensive purchases and is most commonly seen in Europe and Canada (although it’s steadily gaining ground in the US as well).
How Does An NFC Payment Work?
Typically, the majority of content on the web focuses on NFC payments processed using smartphones or smartwatches. Smart devices that you use to process NFC payments can talk with an NFC-enabled POS system to complete a transaction:
- A mobile device and point of sale system must be within about two inches of each other to initiate the payment processing
- The smart device is held close to the terminal by the customer, which processes payments and begins exchanging data
- Using a specific RFID frequency for a close-range transference of data, the customer’s smart device and payment terminal exchange encrypted data in a matter of seconds to complete the transaction
Expect to see NFC cards increasingly introduced in the US in the future as NFC-based payment methods become more commonplace. NFC’s small form factor and ability to function without an active source of power onboard make it possible to process payments with credit cards directly embedded with NFC chips:
- The NFC-embedded card is obtained by the customer from their issuing bank and typically has imposed limits on the transaction sizes that it can process for NFC card payments
- A customer then holds an NFC-embedded payment card within several inches of an NFC-capable payment terminal
- The device establishes a secure connection with the NFC-capable payment terminal to complete the transaction
EMV VS NFC: What’s the Difference?
You may frequently hear EMV mentioned in the same breath as NFC. EMV (Europay, Mastercard, Visa) refers to that metal chip you see in modern credit cards. It serves a similar function as card emulation does in NFC, encrypting and tokenizing the credit card’s information. This makes EMV more secure for in-person transactions than magstripes, which enterprising fraudsters can read and clone.
Because both EMV and NFC card emulation upgrade in-person transaction security, they both qualify for the enhanced liability standards that have been in place since October 2015.
Here’s where it gets a little more confusing. Traditionally, EMV chips are read by inserting them into an EMV-compatible terminal (a dip in payments parlance). More recently, however, EMV chips have come equipped with NFC capabilities. Sometimes called “contactless smart cards,” these cards can be used for tap transactions.
So, to sum up, EMV is a proprietary chip found on credit cards. NFC is an inter-device communication method. EMV chips can be, but aren’t universally, equipped with NFC capabilities. And finally, NFC does not require an EMV chip.
How To Accept NFC Payments For Merchants
Businesses that want to accept NFC payments will need to obtain certain hardware to get started. There can be a lot to consider when it comes to how to use NFC and the process of accepting NFC payments as a merchant. The costs of processing transactions and the costs of new hardware, in particular, can seem expensive, especially to businesses that operate multiple registers or even multiple locations. However, future-proof hardware can be a valuable long-term investment for merchants interested in accepting NFC payments.
Future-proof, for the time being, translates to having an NFC credit card reader (such as those that come with mobile processing apps like Square) or NFC-enabled credit card terminals (usually with merchant accounts). NFC-based payment is far more secure than traditional magstripe-based payment processing. That’s why NFC payments can be such an effective way for merchants to future-proof their payment solutions for customers, as NFC payments start to make up a larger and larger percentage of POS transactions.
Benefits Of NFC Payments
Let’s sum of some of the benefits of NFC payments:
- Security: We’ll go farther into the weeds on this below, but NFC payments are more secure than magstripe readers and roughly equivalent to those of dipped EMV chips.
- Reduced Liability: As of October 2015, using a magstripe reader for POS payments puts your business in a disadvantageous legal position when resolving fraudulent charges.
- Sanitation: Terminal keypads and touch screens make contact with a lot of fingers over the course of the day. NFC allows for contactless payments.
- Reach More Customers: In combination with cash and credit cards, more payment methods translate into more sales, all else being equal.
- Future-Proofing: NFC isn’t going away any time soon and, with EMV chips now more commonly equipped with NFC, is set to make up an ever-growing percentage of transactions.
- Speed: NFC transactions can be faster and keep your lines moving more quickly than dipped cards and even swiped cards.
- Reduced Wear-And-Tear: Physical contact with your terminal adds up over time. Contactless payments put less structural stress on your hardware.
- Centralizing Loyalty Programs: Mobile devices hold more than just digital and mobile wallets; they can also be home to loyalty apps and digital coupons for your store. NFC payments can make your customer more likely to engage with your programs.
How Much Do NFC Payments Cost?
First thing’s first: Merchants need to sign up for a payment processing plan that makes them eligible to accept NFC-based mobile wallet payments from their customers. Plans such as these are essential to accepting mobile wallet payments at multiple registers or locations using an NFC-enabled payment reader or terminal.
Thankfully, NFC equipment tends to be affordably priced for smaller businesses and merchants that potentially operate just one or two locations. In general, mobile card readers tend to be cheaper than terminals, although the right choice can vary by business type and size.
As far as actual transaction costs go, NFC payments cost the same as swiped and dipped transactions.
Are NFC Payments Secure?
Is NFC safe? While the technology isn’t foolproof, it’s comparably safe to other existing POS payment methods. They’re considered on par with dipped EMV chips in terms of security. Among the most appealing aspects of NFC-based mobile payments to tech-savvy consumers are secure storage and transmission of sensitive information. Data breaches that target businesses of any size are a very real possibility and one that consumers are understandably wary of. It’s only reasonable that customers may wonder whether it’s a good idea for them to pay with NFC.
Using a process called tokenization, card numbers are, in fact, never stored in an app or anywhere on an operating system. Instead, they are replaced with a “token” — essentially a secret, one-time-use number — after the payment card has been added to a mobile wallet. On top of that, smart devices get a second layer of encryption through forms of two-factor authentication, such as passcodes, face ID, and push notifications.
We know now that consumers are protected when it comes to them using NFC payments, but what about merchants? It can seem just as risky to accept NFC payments from customers as it can for customers to trust a merchant’s NFC-enabled readers or terminals. Thankfully, hackers can’t easily access useful information from terminals even if they manage to hack them, especially if all your transactions use NFC or EMV payments.
NFC terminals and readers also use tokenization technology to encrypt sensitive information. This tokenization process makes it so there’s no decipherable information to steal from an NFC terminal since it’s all encrypted as a one-time-use numeral. Furthermore, NFC-based payment processing requires that users input unique and personal information about themselves to confirm their identity and prevent passive fraudulent transactions.
NFC Payments Are The Future: Are You Ready?
The number of major retailers that are adding NFC capabilities continues to grow every day. The rising trend of adopting NFC-enabled payment processing solutions doesn’t appear to be slowing down any time soon either. More and more customers are gradually expecting the increased level of convenience that comes with NFC payments, especially in light of the ongoing COVID pandemic.
You’re wondering, do I need NFC? And the answer is probably yes. For many merchants, adding NFC-enabled payment acceptance readers and terminals can make it so they don’t need to upgrade their equipment again any time soon. While it’s inevitable that, eventually, some new payment technology will come along that’s even more convenient and secure than NFC, there’s really nothing on the horizon at the moment that’s quite like it.
Do you want to learn more about mobile wallet payments and credit card readers? Visit our complete guide to mobile credit card readers for a deeper dive into payment card readers, terminals, and POS systems, as well as all of the associated functionalities that are most important to your business’s continued growth and success.