Five Things You Need to Know About Near-Field Communications

Using NFC for payments is quick and easy for consumers, but the technology still faces some major security issues

1. It's cheap and easy. Near-field communication (NFC) is a short-range wireless transmitting technology that connects a smartphone with a receiver to transfer data. NFC's big potential is in mobile payments, which are convenient and cost saving, so they're attractive to users and companies. Sandy Shen, an analyst at Gartner, says NFC appeals to a variety of industries because "it supports any services that require data transfer and authentication."

2. Adoption seems inevitable. Chris Silva, an analyst at Altimeter Group, says NFC is the natural next step for smartphones. But widespread adoption requires that more devices include the technology and more merchants support its use for payment. Today, smartphone users make up less than 50 percent of the mobile market and Apple and Android do not yet offer NFC, though the iPhone 5 is expected to include it. RIM and Samsung are among its early adopters, but it's unclear whether it can be added to existing devices.

3. It's a hot potato for enterprises. Businesses, credit card companies and cell phone providers are all debating who should handle the billing. "If your Verizon bill has [a charge for] coffee on it, who's responsible?" Silva asks. Right now, service providers and manufacturers control whether to include NFC on their phones and whether their billing systems process payments. But IT in the enterprise will have to sort out the problems caused by the personal use of corporate devices and deal with the liability that mobile payments could create. "From a policy standpoint, it's more complicated for IT," Silva says.

4. It's already in use overseas. Silva says NFC is taking off quicker outside the United States and western Europe. For example, in Japan, people use a form of NFC called FeliCa to pay with their phones, and the purchases appear on their phone bills. In the United States, billing agreements between vendors and credit card companies have caused conflict. Thomas Husson, an analyst at Forrester Research, adds that the technology is performing well in Japan in part because mobile providers offer discounts on NFC phones to consumers.

5. Security risks come standard. People will lose devices, which is NFC's biggest security risk and, Silva says, a big barrier to consumers adopting NFC. Arizona State University recently explored using NFC-enabled smartphones as dorm keys, and it sees potential for both big savings and security concerns. Next it will test security improvements, such as the credentials app timing out after 30 seconds.

Follow Editorial Assistant Lauren Brousell on Twitter: @lbrousell.

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