NFC Primer White Paper

7/31/2019 NFC Primer White Paper

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WHITE PAPER

NFC Paym ent s

and t he Pointof Sale


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NFC PAYMENTS AND THE POINT OF SALE MAY/ 20112

Executive Summary

There s a virt ual gold r ush under way as a horde of comp anies converge on NFC Near Fiel dComm unicat ions, a short -range comm unicat ions t echnology in hopes of gaini ng a leadi ngst ake in t he next b ig th ing in payments.

Wit h t he next generat ion of m obi le phones expect ed t o be NFC-enabled, i t is widel yexpected t hat mobi le e lectronic wal let appl icat ions wi l lencompass credit / debit card account s, l oyal ty pr ograms,elect ronic couponing and ot her value-added appl icat ions.

No longer wi l l consumers have to f l ip t hrough leatherwal let s and purses for plast ic cards (or curse t hat t hey left

at home t he one card or coupon t hey need t o pay adiscounted p urchase pri ce); inst ead, t hey l l access t hewal let app on t heir phone, wave i t or t ap i t on a POSdevice and quickly and eff ic ient ly compl et e a t ransact ion.In theory, i t opens up new payment opport uni t ies andopens t he door for new ent rant s t o a market t hat has longbeen dominated by a select handful of maj or card brands.

The l ist of w ould-be part ic ipant s is v ir t ual ly endless:handset providers from Apple t o Nokia; t elecom serviceproviders f rom AT&T t o Sprint ; Int ernet service companies

fr om establ ished giant s l i ke Google and PayPal, t oemerging firms l ike Groupon and Foursquare.

Oft en lost in t he NFC discussion and speculat ion, is t he rol eof t hat ubiqui t ous device t hat is needed t o make i t al l possible t he payment accept ancedevice si t t ing on a merchant s counter. This primer examines NFC t echnology as i t appl iest o payments, and t he role t hat POS t ermi nals and the merchant are l ikely t o play in thedevelopment of t h is new f ront ier in e lectronic payments.

You'd be abl e t o useyour NFC-equi ppedphone only at stores(or even unmannedkiosks) that have acompatib le point-of-sa le term inal, whichis provided bycompanies l i keVeriFone. The sameway cert a in ret a i lersonly take MasterCard,Visa, or Ameri canExpress, not everyreta i ler wi l l acceptevery NFC-equipped

payment device.-- CNET, April 7, 2011


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Content

Execut ive Summ ary 2

NFC Beyond Cont act less Paym ent 4

What s Changed 6

How NFC Works at t he Point of Sale 8

What Has t o Change 10

VeriFone s Rol e in Enabl ing t he NFC Point of Sale 12


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NFC Beyond Contact less Payment

NFC encompasses contactless payment technology, but it does much more thanenable elect ronic t ransact ions.

Early im plem entat ions of cont act l ess payment began wel l over a decade ago. A key

advant age of im plem enting contact less solut ions is t hat t he t echnology can be

readily adapted to current payment systems. Existing POS terminals can be easily

modif ied wit h an int erf ace to a contact less RF reader, giv ing ret ai lers a f ut ure

proofed solut ion t o support ful l -scale contact less rol l outs.

Mast erCard wi t h PayPass and Visa wi t h PayWave each t ri ed t o spur on card issuer and

merchant adoption of contactless payments. American Express and Discover offered

t heir own cont act less t echnology and banks such as Cit ibank and JP Morgan Chase in

t he U.S. and Barclays in t he U.K. began issuing cards t o consumer s.

One of t he earl ie st and most ambit ious imp lement at ions of cont act l ess payment w as

t he Speedpass fob syst em roll ed out by Mobil (now ExxonMobil ) beginning in 1997. In

fol l owing years, t here were a f ew not able syst em w ide imp lement at ions such as t hat

of McDonalds in 2004; and Transport for Londons Oyster card proved contactless

t echnology is highly ef fect ive for fare col l ect i on in mass t ransi t environment s.

But consumers and ret ai lers barely responded t o t he pi t ch t hat cont act l ess would

provide great er speed and convenience at t he checkout counter and, for t he most

part , highly publ ic ized pi lot s seemed t o ei ther w it her on the vine or just never

evolve t o a ful l -scale implem entat ion st age.

Some proponent s of cont act l ess payment bel ieve t hat t he reason t he t echnology

fai led t o mat ch expect at ions was t hat t he promi se of speedier checkout was not a

suf f ic ient incent ive for e i t her merchant or consumer. The di f f erence bet ween a

contact less and a swi pe payment are m arginal t o t he average consumer and not

suff ic ient t o convince a merc hant t o upgrade his or her acceptance devices.

NFC, however, bui lds on the speed and convenience f actor of cont act l ess by of fer ing

subst antial incent ives t o both mer chant and consumer. For t he merchant, t here s t he

prospect of combin ing br ick & mort ar checkout wi t h onl ine promot ions and

elect ronic coupons. For t he consumer, t here is t he al lur e of elect ronic wal l et s st ored


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convenient l y on a mobi l e phone, and t he opport uni t y t o t ake advant age of easi ly

cashing in rewards and discounts electronically and to leverage social media-oriented

appl icat ions.


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What s Changed

Cont act less smart cardsalso know n as proxi mi t y card swer e envisioned as t he nextgenerat i on beyond m agnetic st r ipe or chip -based smart cards. Cardholders would

possess a new credit or debit card wit h embedded elect ronic circui t s t hat could st ore

data and, w hen in cont act or c lose proximit y t o a contact less reader, w ould process

data t o in i t ia t e a payment t ransact ion.

NFC uses the same radio transmission frequency (13.56 MHz) as contactless

smart cards. But t he smart cards are relat ively passive obj ects that respond when in

t he presence of a cont act l ess-equipped reader. NFC, on t he ot her hand, is a more

int eract i ve, mult i -use technology that m akes i t possible t o integrat e cont act l ess

payment with intel l igence embodied in a smartphone or other device.

NFC com es in t wo f orm s: on e is a passive t ag that operat es very m uch l ik e a

t radi t ional smart card, r esponding t o t he signal f rom a cont act l ess reader. The other

form is as a reader and wri t er; 2-w ay comm unicat ion that provides t he abi l i t y to

act ively accept NFC t ransmi ssions such as inf orm at ion f rom an NFC-t agged poster or

kiosk.

Whi le NFC has a wide r ange of pot ent ial appl icat ions, i t is t he use as reader/ wri t er in

a mobi le phone that generates the most ant ic ipat ion and exci tement. TheInternat ional Telecommunicat ions Union forecast ed in 2010 that by t he end of t hat

year there w ould be 5.7 bi l l ion mobi l e phone subscript ions worl dwideequivalent t o

77% of t he wor ld s populat i on. Market r esearch f i rm IDG est imat ed t hat vendors sold

more t han 1.39 bi l l ion unit s in 2010 alone, and t hat growt h in t he coming years wi l l

be driven by sales of smartphones. Juniper Research predicts that one-in-five

sm art phones w il l b e NFC-enabled by 2014.

NFC chips embedded in m obi le phones al low t he phone t o operat e as ei t her a card or

a reader. So, whi le an NFCenabled phon e can sim ply em ulat e an exist ing cont act less

card, i t can also read t ags em bedded in ot her d evices, such as an NFC post er or

kiosk, and t o engage in t wo-w ay communicat ions wit h another NFC chip-enabled

device. Because it can operat e in a passive m ode, t he NFC-equip ped phone i s able t o

conserve batt ery power ; but t he user can easi ly access appl icat i ons t o t urn t he phone

into NFC active mode.


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According to t he NFC Forum, an indust ry group form ed t o develop t he specif i cat ions

and ensure int eroperabi l i t y of NFC, t he technology has t he power t o bring new

sim pl ic i t y and convenience to m any aspect s of a t ypical person's dai ly l i fe including

such functions as:

Interact ion wi t h an automobi l e, such as adj ust ing seat posi t ion, or paying aparking meter

Get t ing inform ation at a bus st at ion or airpor t k iosk, and paying for a f areLogging into computers and copier machinesChecking usage historyDownloading and personalizing applications

Furt herm ore, NFC of fe rs securit y mechanisms t hat p last ic cards lack. Because

mobi l e devices wi l l use cont act l ess t echnology in t he form of an embedded comput er

chip, t he mobi le phone w i l l be a much more secure payment device than the plast ic

cards we use t oday, w rot e Cindy Merr i t t , assist ant dir ector of t he Ret ai l Payment s

Risk Forum, an organization housed at the Federal Bank of Atlanta 1. She said that

current card payment s t echnologies are becomi ng increasingly obsolet e and

vulnerable to f raud.

1ht t p : / / por ta lsandra i ls. f r bat lanta.org/ 2011/ 04/ d ispel l ing-myths-about-mobi le-bank ing-and-payments.htm l


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How NFC Works at the Point of Sale

NFC-enabled smart phones are about t o change everyt hing. From m obi le p ayment andelectronic ticketing to in-store couponing and loyalty programsNFC technology is here nowand ready t o tr ansfor m how w e l ive, wor k and play.

On the count ert op or at some ot her point of service, NFC-capable POS devices and PIN padswi l l le t t he merchant connect m ore c losely wi t h cust omers and prof i t f rom t h is re- imaginedway of l i f e .

First , t he consumer has t o payment -enable an NFC-equipped phone. Here s how t hat processworks:

Consumer purchases an NFC-enabled smart phone and sets up his or her cardsubscriptions

The credi t card issuer t ransfe rs data t o a Tru st ed Service Manager (TSM)The TSM pushes credit card data ont o t he consumer s smart phone. A

mobile operator such as Verizon or AT&T manages a payment application and

issues NFC-secure com ponent s t o m ake t he consumer s phone paymentcapable

Consumer t aps thei r NFC phone on an NFC capable VeriFone accept ancedevice t o make payment via NFC

The tr ansact ion i s rout ed t hrough VeriFone s secure payment gat eway t o t hecard provider f or aut horizat ion and pr ocessing, and t o service providers who

may be providing couponing or loyal t y rew ards and discounts

NFC is not j ust anot her t echnology for payment . I t i s a tw o-way, r eal-t ime comm unicat ionbet ween t he merchant and the consumer t hat can enhance t he payment pr ocess. Wit h NFC,merchant s and retai l ers of al l k inds can tur n t heir point -of-sale int o a much more valuable point of in t eract ion t hat prov ide cust omers wi t h in te l l igent checkout capabi l i t ies. Some oft he NFC-enabled funct ions at t he point -of-sale include:

Increasing sales by m aking it e asier fo r consum ers t o use virt ual e-gif t cards,part ic ipate in loyal t y programs and earn rew ards at t he POS


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Two way comm unicat ion (peer-t o-peer) bet ween t he handset and POS devicet o t ransmit coupons, l oyal ty r ewards, payment and promot ional messages

Providing l i nks and unsurp assed paym ent convenience f or social medi a fanfavori t es and group discount off ers

Gathering cust omer data ef f ic ient l y t hrough NFC-enabled devices forimp roved consumer analyt ics

Enabling alternative payments such as peer to peerWit h NFC, new m edia t echnology is converging wit h new payment solut ions. This shi f t ismuch more t han j ust payment converging wi t h media-i t 's real ly a whole new cat egory t hat 'sall about engaging the customer at the POS and seamlessly bridging the online and offl ineworl ds. This "new" media is at t he point of sale wit h every elect ronic t ransact ion consumers

make-i t 's t he convergence of of f l ine and onl ine market ing and prom ot ions.

In addit ion t o payment capabi l i t ies, NFC provides presence which connect s locat i on-based social media onl ine services and capabi l i t ies t o t he st ore, t he lane, and t he checkout.Tapping t he NFC phone in one simpl e st ep locat es t he presence of t he consumer andautomates their intent ion. I t is this capabi l i ty that wi l l enable onl ine discount providers toint egrat e electr onic coupons, pr omot ions, di scounts and loyalt y rewards wit h t he consumer sphysical checkout t ransact ion, so t here s no need to f umbl e for p rint ed coupons.


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What Has to Change

In March 2011, t he Federal Reserve Banks of Bost on and Atl ant a released a report , MobilePayment s in t he Unit ed St at es: Mapping Out t he Road Aheadt hat set s out a vision for m obi lepayments. However, t he report not es t hat t h is v ision is bui l t upon the recogni t ion that t hecurrent environment faces many chal lenges and t hat success wi l l require extensivecol laborat i on bet ween part ic ipants t o ensure t hat consumers see a homogenous solut ion ast hey do t oday in ot her paym ent channels such as checks, ACH, and cards.

To create t hat homogenous solut ion, t he Fed report says, requires agreed upon st andards,

rules, and pract ices that ensure seamless int eroperabi l i t y r egardless of t he handset , mobi lecarr ier , f inancia l inst i t u t ion, payment network, or merchant locat ion involved in anyindividual s desired t ransact ion.

Getting card brands, issuing banks, wireless operators and handset manufacturers all toagree is no easy task. Nonetheless, during 2010 and 2011, companies such as AT&T andVerizon Wireless, MasterCard, Apple, Google, and other substantive firms announced or wererumored t o be working on col laborat ive ef for t s aimed at making NFC payment appl icat ions areal i t y. These col laborat ions al l aim at enabl ing NFC payment t ransact ions and ot hercapabi l i t ies at t he physical point of sale.

But t he point of sale is far f rom r eady: In t he U.S. t oday, most est imat es peg the number ofinst al led cont act l ess readers at less t han 200,000, which i s j ust a smi dgen of t he t ot alnumber of payment accept ance devices t hat merchant s and consumers rely on forcredi t / debi t t ransact ions.

That means t hat m i l l ions of payment devices in t he f ie ld need to e i t her be ret rof i t t ed orrepl aced wi t h NFC capabil i t ies. VeriFone CEO Doug Bergeron earl y in 2011 urged woul d-beNFC service providers not t o be comp lacent about t he chal lenge. This isn t j ust an issue ofadding an NFC reader, i t requires deep soft ware r ichness at t he point -of-sale t o int eractwith the smartphone and manage a services-based model encompassing new applicationsand deployment s wit hout di srupt ing operat ion of exi st ing card syst ems, Bergeron said.

Bergeron outl ined six key rules t hat VeriFone bel ieves w i l l di ct ate t he successful r ol lout ofNFC payment at t he point of sale:

Rule #1: Deployment and management of com plex NFC t echnologies wi l l r equire signi f i cantongoing services f rom t he ret ai ler s payment syst ems provider. Unti l ret ai lers are assured ofreceiving real value from m obi le commer ce, service providers who st and to gain from ei t hercarr ier f ees, advert ising revenue or t ransact i on charges must be wi l l i ng to b ear t he cost s oft his highly disrupt ive paradigm shif t .
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Rule #2: Mobi le comm erce must add value t o t he consumer. Tapping a phone is a gimm ick,no d i f ferent f rom t apping a card or fob. In addi t ion to prov id ing the abi l i ty t o pay for st uf f

by phone, service providers and retailers need to provide real additional value - such ascoupons, loyal t y rewards and discounts -- for consumers to leave t heir w al let s at home.

Rule #3: Mobil e comm erce m ust be st ream li ned wit h exist ing POS services and managedwel l for t he ret a i ler . Reta i lers won t t o lerate the need for mul t ip le methods of acceptancet o accommodat e what wi l l become a wide array of mobi le comm erce schemes. Al l ideas,regardless of w here or w ho generates them, must converge at a uni f ied point -of-sale.

Rule #4: Mobi le com merce m ust go from zero t o 90 mph in f i ve seconds. Consumers wi l l notembrace mobi le commerce wi thout t he conf idence t hat i t is being widely accepted. I f i tonly works at a f ew select ret ai lers, i t dies a quick death. Ten per cent accept ance is not

sustainable.

Rule #5: Mobi le comm erce must be integrat ed wi t h other forms of payment. Mobi lecommerce won t lead to t he quick deat h of p last ic cards and m ust work wi t h ex ist ingpayment syst ems t hat are cert i f i ed by al l maj or processors and inst al led in t he vast maj ori t yof l arge and smal l ret ai lers.

Rule #6: Mobi le comm erce must be i ronclad secure. Securi t y, bot h real and perceived, isimp erat ive t o the adopti on and sust ainabi l i t y of mobi le comm erce. Even minor set backs insecuri t y could compr omise consumer adopt ion and st op t he movement in i t s t racks.


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VeriFone s Role in Enabling the NFC Point of Sale

Enabling NFC payment s and non-payment appl icat ions requi res accept ance devicesfor a w ide variety of environment s, a secure gat eway service t hat providesint egrat ion of payment wit h value added onl ine services, and a vision of how t oensure merchantsfrom the largest to the smallestcan easily migrate to this newera wit h the confidence t hat t heir invest ment s t oday wi l l be viable as newcapabi l i t ies and payment services come on-st ream.

VeriFone is t he recognized leader in p ayments wit h m i l l ions of syst ems deployedglobal ly and the soft ware and inf rast ruct ure requir ed t o leverage NFC paymentcapabi l i t ies int o a new int el l igent checkout t hat support s ret ai l payments and onl ineservices at t he point of sale. Wit h VeriFone devices on a maj ori t y of m erchantcountert ops and in checkout lanes of m ult i lane ret ai lers, t he company is at t heepicenter of t he NFC ecosyst em and is invest ing heavi ly t o provide t he infr ast ruct urerequired t o make NFC a real i t y at t he point of sale.

VeriFone is the one-st op solut ion wit h t he services and expert ise t o guide you intothis new landscape of the POS experience. By bringing together end-to-end, PCI-compl i ant payment securi t y wit h media cont ent del i vered digi t al ly at t he POS,

VeriFone enables merchant s and acquir ers t o engage consumer s whi le generat ingnew streams of revenue from digi tal content,eye-catching coupons and loyalty offers.

For mor e inform ation visi t www.mobi lewaytopay.com .

Copyright 2011 VeriFone. Al l r ights reserved. No port ion of t his document m ay be reproduced or distr ibut ed in

any form or by any means wit hout t he prior wr i t ten perm ission of said company. Al l trademarks are t he property

of t heir respective owners.
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