NFC Payments and the Point of Sale

The list of would-be participants is virtually endless: handset providers from Apple to Nokia.CNET. NFC PAYMENTS AND THE POINT OF SALE 2 MAY/2011 .Executive Summary There’s a virtual gold rush under way as a horde of companies converge on NFC – Near Field Communications. which is provided by companies like VeriFone. and the role that POS terminals and the merchant are likely to play in the development of this new frontier in electronic payments. 2011 Often lost in the NFC discussion and speculation. In theory. or American Express. This primer examines NFC technology as it applies to payments. No longer will consumers have to flip through leather wallets and purses for plastic cards (or curse that they left at home the one card or coupon they need to pay a discounted purchase price). to emerging firms like Groupon and Foursquare. -. April 7. Internet service companies from established giants like Google and PayPal. The same way certain retailers only take MasterCard. loyalty programs. it is widely expected that mobile electronic wallet applications will encompass credit/debit card accounts. a short-range communications technology – in hopes of gaining a leading stake in “the next big thing” in payments. You'd be able to use electronic couponing and other value-added applications. it opens up new payment opportunities and opens the door for new entrants to a market that has long been dominated by a select handful of major card brands. is the role of that ubiquitous device that is needed to make it all possible – the payment acceptance device sitting on a merchant’s counter. instead. With the next generation of mobile phones expected to be NFC-enabled. wave it or tap it on a POS device and quickly and efficiently complete a transaction. Visa. they’ll access the wallet app on their phone. telecom service providers from AT&T to Sprint. your NFC-equipped phone only at stores (or even unmanned kiosks) that have a compatible point-ofsale terminal. not every retailer will accept every NFC-equipped payment device.

Content Executive Summary NFC – Beyond Contactless Payment What’s Changed How NFC Works at the Point of Sale What Has to Change VeriFone’s Role in Enabling the NFC Point of Sale 2 4 6 8 10 12 NFC PAYMENTS AND THE POINT OF SALE 3 MAY/2011 .

Some proponents of contactless payment believe that the reason the technology failed to match expectations was that the promise of speedier checkout was not a sufficient incentive for either merchant or consumer. there’s the prospect of combining ‘brick & mortar’ checkout with online promotions and electronic coupons. The difference between a contactless and a swipe payment are marginal to the average consumer and not sufficient to convince a merchant to upgrade his or her acceptance devices. For the merchant. giving retailers a ‘future proofed’ solution to support full-scale contactless rollouts. there is the allure of electronic wallets stored NFC PAYMENTS AND THE POINT OF SALE 4 MAY/2011 . But consumers and retailers barely responded to the pitch that contactless would provide greater speed and convenience at the checkout counter and. began issuing cards to consumers.NFC – Beyond Contactless Payment NFC encompasses contactless payment technology. highly publicized pilots seemed to either wither on the vine or just never evolve to a full-scale implementation stage. however. there were a few notable system wide implementations such as that of McDonald’s in 2004. for the most part. A key advantage of implementing contactless solutions is that the technology can be readily adapted to current payment systems. MasterCard with PayPass and Visa with PayWave each tried to spur on card issuer and merchant adoption of contactless payments. In following years. Existing POS terminals can be easily modified with an interface to a contactless RF reader. One of the earliest and most ambitious implementations of contactless payment was the Speedpass fob system rolled out by Mobil (now ExxonMobil) beginning in 1997.K. and Barclays in the U. American Express and Discover offered their own contactless technology and banks such as Citibank and JP Morgan Chase in the U.S. Early implementations of contactless payment began well over a decade ago. For the consumer. NFC. and Transport for London’s Oyster card proved contactless technology is highly effective for fare collection in mass transit environments. builds on the speed and convenience factor of contactless by offering substantial incentives to both merchant and consumer. but it does much more than enable electronic transactions.

and the opportunity to take advantage of easily cashing in rewards and discounts electronically and to leverage social media-oriented applications. NFC PAYMENTS AND THE POINT OF SALE 5 MAY/2011 .conveniently on a mobile phone.

and to engage in two-way communications with another NFC chip-enabled device. NFC.56 MHz) as contactless smartcards. The International Telecommunications Union forecasted in 2010 that by the end of that year there would be 5. Market research firm IDG estimated that vendors sold more than 1. While NFC has a wide range of potential applications. Because it can operate in a passive mode. NFC comes in two forms: one is a passive tag that operates very much like a traditional smartcard. such as an NFC poster or kiosk. the NFC-equipped phone is able to conserve battery power. on the other hand. Cardholders would possess a new credit or debit card with embedded electronic circuits that could store data and. But the smartcards are relatively passive objects that respond when in the presence of a contactless-equipped reader. but the user can easily access applications to turn the phone into NFC active mode. while an NFC–enabled phone can simply emulate an existing contactless card. is a more interactive. it is the use as reader/writer in a mobile phone that generates the most anticipation and excitement.7 billion mobile phone subscriptions worldwide—equivalent to 77% of the world’s population. So. responding to the signal from a contactless reader. NFC PAYMENTS AND THE POINT OF SALE 6 MAY/2011 . Juniper Research predicts that one-in-five smartphones will be NFC-enabled by 2014. NFC uses the same radio transmission frequency (13. it can also read tags embedded in other devices. The other form is as a reader and writer. when in contact or close proximity to a contactless reader.39 billion units in 2010 alone. NFC chips embedded in mobile phones allow the phone to operate as either a card or a reader. would process data to initiate a payment transaction. multi-use technology that makes it possible to integrate contactless payment with intelligence embodied in a smartphone or other device. and that growth in the coming years will be driven by sales of smartphones.What’s Changed Contactless smartcards—also known as proximity cards—were envisioned as the next generation beyond magnetic stripe or chip-based smartcards. 2-way communication that provides the ability to actively accept NFC transmissions such as information from an NFC-tagged poster or kiosk.

the technology “has the power to bring new simplicity and convenience to many aspects of a typical person's daily life” including such functions as: • Interaction with an automobile. or paying a parking meter • Getting information at a bus station or airport kiosk. an organization housed at the Federal Bank of Atlanta1.” wrote Cindy Merritt. NFC offers security mechanisms that plastic cards lack. and paying for a fare • Logging into computers and copier machines • Checking usage history • Downloading and personalizing applications Furthermore. the mobile phone will be a much more secure payment device than the plastic cards we use today. “Because mobile devices will use contactless technology in the form of an embedded computer chip.” 1 http://portalsandrails. an industry group formed to develop the specifications and ensure interoperability of NFC. such as adjusting seat position. She said that current card payments technologies “are becoming increasingly obsolete and vulnerable to fraud.frbatlanta.org/2011/04/dispelling-myths-about-mobile-banking-and-payments.According to the NFC Forum.html NFC PAYMENTS AND THE POINT OF SALE 7 MAY/2011 . assistant director of the Retail Payments Risk Forum.

work and play. and to service providers who may be providing couponing or loyalty rewards and discounts NFC is not just another technology for payment. First. merchants and retailers of all kinds can turn their point-of-sale into a much more valuable “point of interaction” that provide customers with intelligent checkout capabilities. NFC-capable POS devices and PIN pads will let the merchant connect more closely with customers and profit from this re-imagined way of life. Here’s how that process works: • Consumer purchases an NFC-enabled smart phone and sets up his or her card subscriptions • The credit card issuer transfers data to a Trusted Service Manager (TSM) • The TSM “pushes” credit card data onto the consumer’s smart phone. the consumer has to payment-enable an NFC-equipped phone. It is a two-way. participate in loyalty programs and earn rewards at the POS NFC PAYMENTS AND THE POINT OF SALE 8 MAY/2011 . A mobile operator such as Verizon or AT&T manages a payment application and issues NFC-secure components to make the consumer’s phone payment capable • Consumer taps their NFC phone on an NFC capable VeriFone acceptance device to make payment via NFC • The transaction is routed through VeriFone’s secure payment gateway to the card provider for authorization and processing. Some of the NFC-enabled functions at the point-of-sale include: • Increasing sales by making it easier for consumers to use virtual e-gift cards. With NFC. real-time communication between the merchant and the consumer that can enhance the payment process. From mobile payment and electronic ticketing to in-store couponing and loyalty programs—NFC technology is here now and ready to transform how we live. On the countertop or at some other point of service.How NFC Works at the Point of Sale NFC-enabled smart phones are about to change everything.

new media technology is converging with new payment solutions. NFC provides “presence” – which connects locationbased social media online services and capabilities to the store. the lane. payment and promotional messages • Providing links and unsurpassed payment convenience for social media fan favorites and group discount offers • Gathering customer data efficiently through NFC-enabled devices for improved consumer analytics • Enabling alternative payments such as peer to peer With NFC. loyalty rewards. discounts and loyalty rewards with the consumer’s physical checkout transaction. Tapping the NFC phone in one simple step locates the presence of the consumer and automates their intention. This "new" media is at the point of sale with every electronic transaction consumers make-it's the convergence of offline and online marketing and promotions.• Two way communication (peer-to-peer) between the handset and POS device to transmit coupons. so there’s no need to fumble for printed coupons. This shift is much more than just payment converging with media-it's really a whole new category that's all about engaging the customer at the POS and seamlessly bridging the online and offline worlds. It is this capability that will enable online discount providers to integrate electronic coupons. and the checkout. In addition to payment capabilities. promotions. NFC PAYMENTS AND THE POINT OF SALE 9 MAY/2011 .

Until retailers are assured of receiving real value from mobile commerce. mobile carrier. Mobile Payments in the United States: Mapping Out the Road Ahead that sets out a vision for mobile payments.What Has to Change In March 2011. the report notes that this vision “is built upon the recognition that the current environment faces many challenges and that success will require extensive collaboration between participants to ensure that consumers see a homogenous solution as they do today in other payment channels such as checks. Nonetheless. or merchant location involved in any individual’s desired transaction. VeriFone CEO Doug Bergeron early in 2011 urged would-be NFC service providers not to be complacent about the challenge. the Federal Reserve Banks of Boston and Atlanta released a report. the Fed report says.” Getting card brands.” Bergeron said. companies such as AT&T and Verizon Wireless. advertising revenue or transaction charges must be willing to bear the costs of this highly disruptive paradigm shift. which is just a smidgen of the total number of payment acceptance devices that merchants and consumers rely on for credit/debit transactions. MasterCard. wireless operators and handset manufacturers all to agree is no easy task.000. service providers who stand to gain from either carrier fees. financial institution. However. and cards. Bergeron outlined six key “rules” that VeriFone believes will dictate the successful rollout of NFC payment at the point of sale: Rule #1: “Deployment and management of complex NFC technologies will require significant ongoing services from the retailer’s payment systems provider. issuing banks. ACH. “This isn’t just an issue of adding an NFC reader. requires “agreed upon standards.S. during 2010 and 2011.” NFC PAYMENTS AND THE POINT OF SALE 10 MAY/2011 . most estimates peg the number of installed contactless readers at less than 200. rules. Apple.” To create that homogenous solution. payment network. These collaborations all aim at enabling NFC payment transactions and other capabilities at the physical point of sale. and other substantive firms announced or were rumored to be working on collaborative efforts aimed at making NFC payment applications a reality. it requires deep software richness at the point-of-sale to interact with the smartphone and manage a services-based model encompassing new applications and deployments without disrupting operation of existing card systems. Google. today. That means that millions of payment devices in the field need to either be retrofitted or replaced with NFC capabilities. and practices that ensure seamless interoperability regardless of the handset. But the point of sale is far from ready: In the U.

Security. Even minor setbacks in security could compromise consumer adoption and stop the movement in its tracks. In addition to providing the ability to pay for stuff by phone.” Rule #3: “Mobile commerce must be streamlined with existing POS services and managed well for the retailer.” Rule #5: “Mobile commerce must be integrated with other forms of payment. All ideas. Mobile commerce won’t lead to the quick death of plastic cards and must work with existing payment systems that are certified by all major processors and installed in the vast majority of large and small retailers. no different from tapping a card or fob.Rule #2: “Mobile commerce must add value to the consumer. it dies a quick death. Retailers won’t tolerate the need for multiple methods of acceptance to accommodate what will become a wide array of mobile commerce schemes. is imperative to the adoption and sustainability of mobile commerce. Consumers will not embrace mobile commerce without the confidence that it is being widely accepted. both real and perceived.” Rule #6: “Mobile commerce must be ironclad secure. loyalty rewards and discounts -.for consumers to leave their wallets at home. Ten percent acceptance is not sustainable. must converge at a unified point-of-sale. service providers and retailers need to provide real additional value –. If it only works at a few select retailers.” Rule #4: “Mobile commerce must go from zero to 90 mph in five seconds. regardless of where or who generates them.such as coupons. Tapping a phone is a gimmick.” NFC PAYMENTS AND THE POINT OF SALE 11 MAY/2011 .

By bringing together end-to-end. eye-catching coupons and loyalty offers. PCIcompliant payment security with media content delivered digitally at the POS. a secure gateway service that provides integration of payment with value added online services. and a vision of how to ensure merchants—from the largest to the smallest—can easily migrate to this new era with the confidence that their investments today will be viable as new capabilities and payment services come on-stream. All trademarks are the property of their respective owners. No portion of this document may be reproduced or distributed in any form or by any means without the prior written permission of said company. VeriFone is the recognized leader in payments with millions of systems deployed globally and the software and infrastructure required to leverage NFC payment capabilities into a new intelligent checkout that supports retail payments and online services at the point of sale. With VeriFone devices on a majority of merchant countertops and in checkout lanes of multilane retailers. For more information visit www. VeriFone is the one-stop solution with the services and expertise to guide you into this new landscape of the POS experience. the company is at the epicenter of the NFC ecosystem and is investing heavily to provide the infrastructure required to make NFC a reality at the point of sale.mobilewaytopay.VeriFone’s Role in Enabling the NFC Point of Sale Enabling NFC payments and non-payment applications requires acceptance devices for a wide variety of environments. NFC PAYMENTS AND THE POINT OF SALE 12 MAY/2011 . Copyright ® 2011 VeriFone. All rights reserved. VeriFone enables merchants and acquirers to engage consumers while generating new streams of revenue from digital content.com.

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