What You Need to Know About NFC Smartphone Payments

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While people in many parts of the world have been happily using mobile phones as a convenient method of payment for years, the concept of contactless payment systems is still slow to catch on in the United States.

With the Android mobile OS supporting NFC (near-field communications), and rumors that Apple and RIM will include NFC support in their upcoming smartphones, the concept is gaining momentum. As a business, how do you go about joining this NFC revolution?

First, though, why should your company care about being able to accept payments using NFC technology?

Chase Bank has been issuing credit and debit cards armed with "blink" wireless payment technology for more than five years. This enables users to make payments at select stores by waving the card at the cash register.

Chase credits blink payments with: "Increasing the average ticket sale for some merchants by 40 percent more than cash purchases; Increasing the frequency of everyday purchases at many contactless-enabled merchants by 35 percent over credit cards with traditional magnetic stripes; Reducing consumers' waiting time in line by 15 to 20 percent in stores and 40 percent at the drive-thru for quick service restaurants; and reducing consumers' average transaction time by 10 to 40 percent."

NFC payments don't have to be tied to Visa or Mastercard per se, but it might help drive support if they were.
I'm sure that most businesses can benefit similarly from boosting their average sale amounts, and can appreciate the efficiency of being able to process customer transactions faster. What's the catch, though?

In order to accept NFC payments, you have to have a POS (point of sale) system capable of processing a contactless payment transaction. That means either purchasing and implementing an NFC-compatible peripheral that connects to your existing POS system--like the OTI Saturn 5000 which retails for about $170, or the ViVOPay 4500 terminal which costs around $150--or replacing your entire POS system with a new one that has the NFC compatibility built in. Depending on the size of the business, the upfront investment to support NFC can be significant and possibly cost-prohibitive.

According to reports, Apple is considering building some momentum for NFC support by providing free or low-cost NFC payment terminals to retailers. Seeding the market would certainly help drive adoption, but it is as important--or more so--that the NFC backend be convenient and familiar. Users want NFC payments to be tied to existing credit cards or bank accounts, and don't want to have to apply for or participate in some new system that adds complexity to the purchasing process.

The good news is that contactless payments and NFC are both based on open standards, so different point-of-sale terminals are compatible with various cards, key fobs, or other mobile devices regardless of vendor. The bank or payment system processing the transactions behind the scenes is a bigger hurdle than the technology itself.

The problem with trying to jump on the NFC bandwagon right now is that there are too many bandwagons. You know how some businesses accept Discover Card or American Express while others don't? That same sort of fragmentation exists with NFC implementations, making it confusing for businesses to choose which NFC solution to support.

Many businesses, such as McDonald's, Walgreens, and Cinemark Theatres already have payment terminals capable of processing contactless transactions from cards like the ones offered by Chase. A business can embrace the Apple NFC system if it comes to fruition, but that would seemingly limit the value to only customers carrying NFC-capable iPhones or iPads. It might be nice, but it's too limited a population of customers.

For maximum efficiency, contactless payments are typically for smaller purchase that don't require a signature--under $25. For this reason, businesses that deal in higher average transactions probably won't get much benefit from NFC, while restaurants, coffee shops, and other smaller businesses are more suited to take advantage of it.

If the NFC payment backend, processing infrastructure, and card or device compatibility evolves to become more unified, it will make the technology exponentially more valuable to businesses and consumers alike. For now, if you want to support NFC payments, make sure you weigh the options carefully and choose a platform that your customers are likely to use.

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