Everything You Need to Know About NFC Mobile Payments

NFC stands for “near-field communication” and is a contactless payment technology that lets businesses accept credit card payment and other payments without the need to swipe a physical card through a scanner. Instead, using the same technology as key fobs that allow automatic entrance to a building, NFC technology allows for data-sharing between two mobile devices that are in close proximity to each other. The credit card or mobile device with an open payment app just needs to be held close to the NFC reader in order for the transaction to go through. 

Merchants and customers alike have become more partial to NFC mobile payments especially during the Covid-19 pandemic because the process is completely contactless with no need for the seller to touch the customer’s credit card. The NFC technology works much faster than both Bluetooth and magnetic strips, making payments go through quicker. 

Almost all of today’s payment gateways like Apple Pay, Google Pay and Samsung Pay are NFC-enabled meaning that most consumers can easily make NFC mobile payments at any store that has integrated the technology. Any merchant that is already accepting credit card payments should not find it difficult to also accept NFC payments. 

How Does NFC Mobile Payment Work?

In order for a business to accept NFC mobile payments, the following steps need to be taken:

1. Choose a payment processor that offers NFC technology
2. Purchase and install an NFC reader
3. Set up a merchant account
4. Connect the NFC reader to the merchant account
5. Begin accepting NFC payments

When a customer wants to make a purchase using NFC mobile payment, the point-of-sale system emits a signal in search of the NFC-enabled mobile device. As soon as the NFC reader gets a response to its NFC request from the customer’s phone or credit card, the payment information gets communicated wirelessly to the reader and the transaction is processed. Funds are then transferred to the merchant account and from there to the merchant’s business account. 

What is NFC Mobile Payments Technology?

The technology used for NFC contactless payments is based on radio waves that are used to send and receive data similar to RFID technology. Where NFC differs from RFID is in its use of different wireless protocols and its limitation to only using a frequency of 13.56 MHz. 

In order for the technology to work, both the sending and receiving device must be within an inch or two of each other. Electromagnetic fields transmit the data from the mobile device or credit card to the NFC reader and vice versa. This process only takes a few seconds.

There are three different ways that NFC can operate:

• Peer-to-Peer - two-way data transfer between two devices, such as when an NFC transaction is done using a smartphone. 
• Read/Write Only - one-way communication only. One of the two devices is only a transmitter and the other is only a receiver. 
• Card Emulation - an NFC-enabled credit card or device must be tapped directly onto an NFC reader (as opposed to being completely contactless). 

Can Your Business Accept NFC Mobile Payments?

Pretty much any business is capable of offering NFC payments as part of their policy of accepting mobile payments. It shouldn’t be the only payment solution offered, especially as not all cards are NFC-enabled and not all customers have smartphones, but providing it as an option can be good for business. 

NFC payments work best for the following types of businesses:

• Any business with a physical brick-and-mortar location, including retail stores, home goods and more.
• Street vendors, ice cream trucks and other mobile retailers.
• Restaurants, especially those that offer take-out options.
• Doctors, dentists, therapists and other health care providers.
• Gyms, physical therapists and other recreational centers. 
• Nonprofits or other organizations that may host events that require payment or donations on-site.

In order to accept NFC payments, a merchant just needs an NFC reader as well as work with a payment services provider that accepts e-wallet payments. Most merchant account providers do offer the ability to accept NFC payments and the fees are usually similar to those of regular credit card payments. 

Which Online Payment Methods and Apps Work With Mobile NFC Payments?

As soon as a business has their NFC reader set up and connected to their POS system, they can accept NFC payments from customers using a range of devices and/or apps, including:

• Smartphones
• Smartwatches
• Tablets
• Laptops 
• Credit or debit cards that are NFC-enabled

It’s up to the consumer to ensure that they have a device that is able to make NFC mobile payments. For example, an iPhone user must have an iPhone 6 or later model. Android devices beginning with version 4.4 support NFC payments. In addition to a device that is compatible with NFC, consumers must also have a mobile wallet app that will facilitate the sending and receiving of payments. 

These apps include Apple Pay for iOS users, Google Pay for Android users and Samsung Pay for Samsung users. Of course there are also plenty of other mobile wallet apps such as MasterCard PayPass, Visa Paywave and Paypal that can also be used. It’s primarily up to the merchant to decide which types of payment methods including contactless payment methods they will accept. 

Are NFC Mobile Payments Safe?

NFC technology overall is just as secure as a regular credit card, although nothing is 100% secure. Security concerns include the following:

• It may be easier for a customer to conduct a fraudulent transaction because the merchant doesn’t physically handle the device used for the NFC payment so cannot confirm that no fraud is taking place.
• NFC payment records are just as susceptible to hackers as any other payment information.
• If a customer doesn’t know how to use their NFC payment enabled device properly the transaction may not go through. 

While there are some security concerns when using NFC payments, there are also characteristics that make the technology more secure:

• Encryption - in contrast to the data in a credit card’s magnetic stripe which is easily readable, NFC data is encrypted and dynamic making it much harder for would-be hackers to decipher.
• Tokenization - when the data is being transmitted as part of an NFC transaction, it is tokenized into unintelligible information. For example, Apple Pay replaces the personal financial data with a random number created using an algorithm. If a hacker was able to intercept the data, they will only get the random number and not any usable financial information.
• Fingerprints - most smart devices require a fingerprint scan or facial recognition in order to authorize a payment, ensuring that it’s actually the owner of the phone authorizing the payment, minimizing the risk of fraud. 
• Proximity - in order for a contactless payment to go through, the two devices must be in extremely close proximity. It would be very difficult for an identity thief or other hacker to steal data without being noticed. 
• Secure Element Validation - even once the connection between the NFC reader and the NFC-enabled device is established, the transaction is only completed once the purchase has been validated with a secure element chip. This process involved assigning a unique digital signature to each payment, similar to the validation process used with chip-enabled credit cards.  

Pros and Cons of Accepting NFC Mobile Payments 

There are always pros and cons to consider when deciding which types of online payment methods to accept. While NFC mobile payments are convenient for customers, there are also risks to a business that chooses to accept such payments. Following is a brief look at both the pros and the cons of accepting NFC payments. 

Pros 

• Convenience - customers have the flexibility to choose from many different devices and payment options, and employees have the convenience of contactless payments and no need to handle credit cards or other devices.
• Broad applications - businesses across all types of industries can use NFC technology and accept NFC payments.
• Fast and seamless - funds generally settle within 24 hours and are transferred to the business’s account by the next day.
• Secure - multi-factor authentication and other security features like those described above make it difficult for fraudulent payments to take place.
• Speedy checkout - contactless payments can process up to 10 times faster than other payment options. 

Cons

• Expensive - each transaction can cost several cents plus a percentage of total value, which can add up to large costs for larger businesses especially.
• Security risks - although the risks are not significantly greater than any other credit card transaction, there is always the risk of data being hacked.
• Fraud potential - because of the contactless nature of the payments, merchants don’t usually check identification or verify the identity to ensure the person making the purchase is actually who they say they are. 

While NFC technology is not new, both customers and merchants have been slow to adopt its usage, most likely due to security concerns (most of which are actually unfounded), as well as a lack of knowledge of how to use apps like Apple Pay or other digital wallets. 

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