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One of the defining features of the next generation of smartphones – which are starting to come out now – will be a technology called NFC (Near Field Communication). Instead of whipping out your wallet at a store, via NFC you’ll simply tap or wave your phone to make a payment. This has major implications for banking institutions and the four main payment networks in the U.S.: Visa, MasterCard, American Express and Discover. All have been actively preparing for this sea change in how we pay for things…
NFC is a newer wireless technology that allows devices to communicate with each other over short distances. The data transfer between the devices occurs through one of two means: either a short wave or, as is more common, a touch or tap.
Visa has used NFC to develop its mobile wallet service, which will hold all of a consumer’s payment card information (both Visa accounts and otherwise) and loyalty card information on the consumer’s mobile phone, available with just a tap of the phone against a receiver. Visa has teamed with Samsung to bring this payment option to the 2012 Olympics in London, where it will be supported at over 60,000 locations.
Like Visa, MasterCard is also focused on developing its NFC capabilities, attempting to link its PayPass program with mobile payments through SIM based solutions, embedded solutions, and NFC tags. American Express’s “Serve,” a digital payments and commerce platform, has developed a partnership with Sprint which will allow certain Android phones to support Serve’s mobile wallet. Additionally, all four major payment networks have reached an agreement to support Isis, the mobile wallet solution developed through the collaboration of AT&T, Verizon Wireless, and T-Mobile USA.
Even banks such as Wells Fargo, Bank of America, Chase, and US Bank, among others, have all been working towards incorporating NFC into their mobile banking services.
Outside of NFC, a number of startups have developed alternative methods for processing mobile payments. These ideas include payment card scanning (as developed by Card.io), information transfer via ultrasound (from Zoosh), and bill-to-phone payments (provided by Payfone, as well as recent eBay acquisition Zong).
However, not all forecasts are as positive as this one. Many people are not expecting POS- based mobile payments to attain widespread usage until 2014, at the earliest. This is largely due to the difficulties of developing any two-sided market: merchants don’t want to install the receivers necessary to accept NFC before enough consumers are regularly making NFC-based payments, while at the same time consumers don’t want to pay for phones with NFC technology until enough merchants have installed the receivers necessary to accept it.