Unlike a piece of plastic with a magnetic stripe, a payment system based on an intelligent, networked device has the advantage of providing real-time feedback on account and payment information. Combine these advantages with the fact that most of us are carrying a mobile device anyway, and a virtual wallet could eventually make credit cards as uncommon for retail transactions as personal checks are today.
In locations in Africa, Asia and Latin America, money is often stored in a mobile account and transferred to another one during a purchase by bringing the buyer’s and seller’s cell phones into close proximity. This is done by means of a short-range wireless connection called near field communications (NFC). Just as elsewhere, NFC will lead the mobile-transaction revolution in the US.
With major payment processing companies finally signing onto the mobile payments game, the US is entering an inflection point for NFC technology. Much of the infrastructure has already been built. In the 2000s, for example, Visa and MasterCard developed payWave and PayPass, respectively, both contactless payment technologies. More recently, Visa, MasterCard, Discover and American Express have licensed these systems to Google for use in smartphones with its mobile payment system, Google Wallet.
Along with the software and systems sides of the mobile payment equation, we are seeing increasing numbers of smartphone models equipped with NFC technology. 2011 was the biggest year on record for NFC adoption, with 35 million new smartphones equipped with the technology, according to IMS Research.
With this kind of growth and industry support, NFC technology is set to revolutionize the way we pay in a manner very similar to what the credit card industry accomplished in the second half of the 20th century. Innovators pioneering the transformation with a strong market position should do very well for themselves and their investors.