NFC: What It Is, How It Works, And Why Apple's Adoption Of It For The iPhone Will Upend The Payments Industry

BIINFC has a real opportunity to power this boom

For years, analysts have said we would soon be ditching our plastic credit cards and start paying with our phones. They would use a radio frequency called near field communication (NFC) to send payments data to compatible store registers. But NFC-based apps like Google Wallet failed to gain popularity.

In a new report from BI Intelligence, we take a look at why NFC is back. Apple has it included it in the new iPhone 6 and iPhone 6 Plus. That's the catalyst that NFC mobile payments were waiting for. Recent developments on the consumer, merchant, and developer-side are reinvigorating NFC.

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Here are some of the key takeaways:

• Globally, shipments of NFC-enabled phones already grew to nearly 300 million in 2013. That means that there is already a large installed base of phones that can make NFC mobile payments. Once the new iPhone 6 and iPhone 6 Plus rollout, the installed base will grow even more.
• The EMV security standard, which calls for credit cards with embedded computer chips, is driving retailers in the U.S. to upgrade their payment terminals and many of these new terminals are also NFC-compatible. That means that consumers will have plenty of options for where they can use NFC-based mobile wallets, which will catalyze adoption.
• Contactless cards will act as a bridge for getting consumers to pay with their phones. Contactless cards, which interact with readers that are also NFC compatible, are already gaining popularity in Europe for low-value transactions. Consumers would easily transition from contactless card payments to NFC phone payments.
  
• Public transport systems will spur large-scale contactless card and NFC-based mobile payments adoption. Once people get used to tapping a card or phone to pay at the subway in big cities like London and New York, it will seem more natural to do so in other retail environments, with apps like Apple Pay and Google Wallet.
• Though consumers have concerns about the security of mobile payments, these can be alleviated with education. NFC-based mobile wallets already have a host of security features that make them as secure, or more secure, than credit and debit cards.

In full, the report:

• Provides 5-year forecasts of mobile payments volume, shipments of NFC-compatible terminals, and phones and the installed base of HCE-enabled Android phones from 2013-2018.
• Explains that even though NFC mobile payments aren't much better than paying with cards from the consumer's perspective, there are a handful of reasons why it doesn't matter.
• Explores why the EMV security standard, host card emulation (HCE) and public transport could push NFC to become the leading payments technology.
• Analyzes how Apple's unique position with consumers could bolster NFC adoption.