ISOs And NFC Specs Lend Impetus to Contactless Payment Trend

New technical specifications for so-called near-field communication (NFC), released this week by an international rules-setting body backing the technology, should add momentum in the U.S. to the trend toward contactless payments on mobile phones. “A lot's happening behind closed doors,” says Erik Michielsen, director of RFID and M2M research at ABI Research, Oyster Bay, N.Y. “I expect to see a lot more payment trials and connectivity trials in 2006.” At the same time, independent sales organizations are showing signs of responding to merchant and consumer interest in wave-and-pay technology generally, with at least two ISOs now adding contactless readers to their offerings of free gear for merchants. This week, Acies Corp., an ISO based in New York, announced it will supply merchants with the ViVOtech 4000 reader for contactless transactions at no charge during the month of June. It's also starting a series of monthly teleseminars for smaller ISOs on contactless payments. Meanwhile, United Bank Card Inc., a Hampton, N.J.-based ISO that late in 2004 kicked off what soon became a trend among larger ISOs toward free-equipment offers, began marketing free copies of the same ViVOtech device in April. Also this week, the 2-year-old NFC Forum announced it had settled on its first five specifications governing how mobile devices can interact with readers or other devices for applications such as payments. The first two specifications, which will be released during the third quarter, define formats for data exchange and establish a record type definition (RTD), or what NFC experts call a “grammar,” for these interactions. The other three specifications, to come out later, cover RTDs for so-called smart posters, or advertising signs containing NFC chips with data that can be read by NFC devices, as well as for other applications. The forum, which claims some 80 technology vendors and payments networks among its international membership, also set out standards for so-called tag formats. Tags are the chips that NFC devices, such as phones or other tokens, can read. Three of the four new tag standards are based on the existing ISO 14443 standard followed by American Express Co., MasterCard Inc., and Visa USA in their contactless payment programs. The fourth is based on ISO 18092, the foundation of Sony Corp.'s FeliCa technology, which is used in Japan. With standards beginning to fall into place, it should be easier for more vendors to begin supplying compliant devices that can operate across multiple programs, Michielsen says. “That will fuel the market” for NFC-based contactless payments because more vendors will mean more pilots, he says. As important, he points out, the standards help ensure so-called backward compatibility, meaning NFC-enabled handsets will work as payment devices with existing contactless readers, most of which now receive transactions from credit and debit cards embedded with chips and antennae . “People always ask, 'Where's the installed base, where can I use [NFC]?'” says Michielsen. “You can piggyback on the existing card-based infrastructure.” As a result, he says, the number of U.S. locations accepting NFC-enabled devices will reach 55,000 by year's end, up from around 25,000 contactless locations now. Altogether, Michielsen projects 12 to 15 NFC pilots by the end of the year. The only payments pilot for NFC so far began in December in Atlanta (Digital Transactions News, Dec. 14, 2005), involving Visa as well as Cingular Wireless, Nokia, and JPMorgan Chase & Co., with Chase credit card accounts embedded in Nokia phones. With contactless payment, cards or other tokens embedded with chip-and-antennae inlays can transmit via radio waves card data to point-of-sale receivers, thus bypassing the conventional card swipe. With NFC, which is a very short-range technology, mobile handsets can be leveraged to take the place of both payment cards and payment devices, sending as well as receiving payment data. NFC-enabled phones can also interact not only with point of sale readers but also with advertising posters and other such media to download digital goods, and can be provisioned over the air with new “cards” as well as coupons and other media.