Smart Card Alliance : Slideshows : NFC – The Future of Mobile Payment
People use their mobile devices to connect in ways they were never able to before. They can use their devices to check email, browse the Web, check bank statements and make transfers, and basically do anything they can do using a Web browser. NFC provides a new way for people to use mobile devices to interact with the physical world around them–download tickets, receive offers, gather information, and make payments for everyday activities, all by tapping or waving their mobile phone near a merchant terminal.
This presentation examines the challenges of using bank-issued contactless credit, debit and prepaid cards for transit fare payment and how the two industries can link payment products and services.
NFC stands for Near Field Communication and is a standards-based wireless communication technology that allows data to be exchanged between devices that are a few centimeters apart. NFC operates at 13.56 MHz and transfers data at 424 Kbits per second. NFC is distinguished by its intuitive interface and its ability to enable largely proprietary wireless networking platforms to interoperate in a seamless manner. For payments, NFC is compatible with the POS infrastructure already in place to support contactless credit, debit and prepaid cards.
NFC technology can be used in many ways to share information, from paying for purchases at retail stores to storing identity credentials. Here are a few ways that NFC is used:
Making payments with a wave or a touch anywhere a contactless card reader is deployed
Storing tickets to access events, transportation systems, and parking garages
Storing personal information that will allow access to secure locations such as office buildings or storage facilities
Contactless payment, payment with the use of contactless debt and credit cards, has been a growing market over the past couple of years. Visa, MasterCard, Discover, and American Express all offer cards that contain smart chips that enable contactless payment. The contactless merchant point-of-sale infrastructure that is now in place to support credit and debit payment can also accept NFC-enabled mobile payments, providing a head-start for broad acceptance and use. With NFC, contactless payment capabilities are in your phone, allowing you to securely store and use your payment accounts with the mobile phone.
An NFC-enabled phone is provisioned with a version of a payment application (e.g., American Express ExpressPay, Discover Zip, MasterCard PayPass, Visa payWave) and personalized with a payment account (i.e., credit, debit or prepaid) issued by the consumer’s financial institution. The phone can then use NFC technology to communicate with a merchant’s contactless payment-capable POS system. To pay, the consumer holds or taps the phone close to the merchant’s reader. The consumer’s account information is sent to the contactless POS reader via radio frequency (RF). The payment and settlement processes are the same processes used when a consumer pays with a traditional contactless or magnetic stripe credit or debit card.
Each NFC-enabled application has its own requirements for security. For example, payment account information and payment transactions must be highly secure, while retail offers may require little to no security. NFC-enabled credit and debit payment applications are very secure. Personal information, including financial information such as an account number and expiration date, is stored in a secured area in the NFC phone, called the “secure element.” Each credit or debit payment transaction gets a unique digital signature from the chip and there are many other layers of security in the transaction processing network to prevent fraud.
The secure element (SE) is at the heart of secure NFC applications. The SE is a secure microprocessor (a smart card chip) that includes a cryptographic processor to facilitate transaction authentication and security, and provide secure memory for storing payment applications (e.g., American Express, Discover, MasterCard, Visa and other payment applications). SEs can also support other types of secure transactions, such as transit payment and ticketing, building access, or secure identification.
The secure element could be implemented either in the SIM/UICC card or a microSD card that can be inserted in the mobile phone, or in a secure smart card chip that is embedded in the mobile device when it is manufactured. The secure element implementation approach will be selected by the mobile operator implementing the service and/or by the payment service provider for SD card implementations.
The TSM is the trusted third party who provides over-the-air (OTA) services to the NFC payment application issuer and the owner of the SE (e.g., the MNO, issuer, or retailer). The TSM handles the provisioning and management processes so that issuers do not need to deal with multiple MNOs, phone models, and operating systems, and MNOs do not need to deal with multiple issuers. The TSM role could be played by many different entities, including the MNO, the issuer, the personalization bureau, the payments processor, or some other neutral third party service provider. Multiple TSMs may be involved in the provisioning of a payment application.
The primary role of the TSM in the NFC ecosystem is to facilitate management of the NFC payment application on the consumer’s phone. A few of the functions provided by the TSM are OTA activation or provisioning of the NFC payment application, life-cycle management of the NFC payment application on the consumer’s phone, and bridging services for transferring the NFC application to a new phone when necessary. A core piece of the OTA provisioning process includes preparing the data and accessing the appropriate security keys required to initially provision the NFC payment application and to update it once provisioned.
The availability of NFC-enabled handsets continues to grow. According to Juniper Research, at least one in five smartphones will include NFC technology by 2014 and Frost & Sullivan predicts that by 2015 more than 800 billion phones will be NFC-enabled and that the total payment value for NFC globally will exceed €100 billion. More than 20 mobile phone manufacturers are currently producing or rumored to be in preproduction of NFC-enabled handsets. NFC World has a full list of phones that are currently available with NFC technology as well as a list of devices that will be available in the near future.
Currently there are many NFC mobile payment and marketing pilots and initiatives happening worldwide involving many of the world’s largest companies. Most notably in the U.S., Google Wallet is currently available to owners of the Nexus S 4G on Sprint Mobile, and Isis, the joint venture between AT&T Mobility, Verizon Wireless, and T-Mobile USA, has signed up Visa, MasterCard, Discover, and American Express for NFC mobile payments. eBay’s PayPal unit also unveiled plans for mobile payment. For more information on current NFC trials and pilots around the world visit NFC World, where trials and commercial services are listed by country.