May 25, 2011 3:59 PM

Wired.com FAQ: Near Field Communications' Big (Money) Moment

Mobile payments are booming — and the space is set to get bigger. Silicon Valley titan Google is expected to announce a new mobile payments system at an event in New York City on Thursday. According to Bloomberg, Google is teaming up with Sprint, a longtime Google partner and the No. 3 wireless provider in […]

Mobile payments are booming -- and the space is set to get bigger.

Silicon Valley titan Google is expected to announce a new mobile payments system at an event in New York City on Thursday. According to Bloomberg, Google is teaming up with Sprint, a longtime Google partner and the No. 3 wireless provider in the United States after Verizon and AT&T, to roll out a mobile-payments system based on Near Field Communication, or NFC, technology.

The mobile-payments space is at an inflection point, according to Sarah Clark, editor of Near Field Communications World. Clark told Wired.com by phone Wednesday that NFC could become the industry standard for mobile payments within the next year. Clearly there is massive interest in transforming, and disrupting, the existing credit card industry and point-of-sale space.

"We're operating with 1970s technology today," Clark said. "There are all of these intermediaries, kind of like a spider's web of connections until the final payment settlement goes through."

"The question everyone is asking is: 'Is it possible to economically disintermediate Visa and Mastercard from the process, and thereby bring down transactions costs," Clark said.

Here's an explainer on NFC technology.

What Is NFC?

Near Field Communication technology is a short-range tool that operates on wireless frequencies similar to RFID chips and tags. It works by connecting a user's mobile device, equipped with an NFC antenna or specially programmed SIM or SD data card, to a receiver, usually a few feet away. The idea is that consumer will be able to "wave" their handsets when they're buying something at a retail location. There are technical challenges with NFC, however, including the fact that it requires an antenna and a "secure element" in order to guard consumers' purchases.

What Phones Carry NFC?

Not many, at present, at least not in the United States. As of today, the most prominent mobile phone that supports NFC payments is Google’s Nexus S handset, but that could change tomorrow, following Google's announcement. Clark is keeping a running tally of newly-NFC-compatible devices as they become available.

Who Are the Big Players in the Mobile-Payments Space?

Everyone from financial services companies like Visa and Mastercard, to big retail banks like Wells Fargo and Bank of America, to tech giants like Apple and Google and PayPal, to startups like Square. Bloomberg reported last month that Google plans to begin testing its own mobile-payments system. Google will install thousands of special cash-register systems from VeriFone Systems, which uses NFC, at merchant locations in New York and San Francisco, the news service said. Clark said that NFC technology could help Google on its quest to dominate mobile advertising.

As for Apple, Cult of Mac’s Leander Kahney reported last November that the Cupertino, California, tech juggernaut is experimenting with NFC technology on its iPhone line of smartphone devices.

Other big players jockeying for position in the space include ISIS, an initiative being spearheaded by AT&T, Verizon, T-Mobile (which AT&T is in the process of acquiring) and Discover Financial Services, which sells the Discover credit card. In 2009, financial services giant American Express purchased Revolution Money, a company backed by former AOL executive Steve Case, for $300 million.

Twitter co-founder Jack Dorsey unveiled Square Register this week. It will allow merchants to manage inventory and run analytics against their sales — without expensive equipment and high fees. Financial services giant Visa announced plans last week for a digital wallet based on NFC. The Square launch follows news that PayPal bought mobile-payments startup called Fig Card. Seattle-based coffee giant Starbucks announced in January that its mobile phone application is now accepted in all 6,800 of the company’s retail locations.

Toronto's Research In Motion, which makes the BlackBerry line of devices, is expected to announce two new, NFC-equipped versions of the BlackBerry Bold in the near-future, Clark said. The Nokia Astound smartphone, provided by T-Mobile, (aka Nokia C7) will be NFC-compatible as well, Clark reported Monday.

Will the Apple iPhone 5 Have NFC Technology?

Unclear at this time. Apple is definitely working in the platform, according to Clark, and has filed several patent applications involving the technology, leading some to speculate that NFC will be included in the upcoming iPhone 5. However, Bernstein Research analyst Toni Sacconaghi recently cast some doubt on that idea, in part because the NFC infrastructure rollout remains so nascent.

"There are lots of people outside Apple who have opinions about whether the iPhone 5 will have NFC, but nobody knows for sure," Clark said. "We know they're working on it, but they might have felt like there were still some things to be sorted out. With Google's announcement, Apple may decide that they need to go ahead."

Is Anything Like This Already in Common Use?

Proximity cards are based on the same concept, but slightly different technology. The most common application is the company-issued card that gives you access to buildings and specific rooms. Less common are dongles and tags, like those from Visa, and the Mobile Speedpass, which allow cashless point-of-sale transactions. This approach hasn't gained much traction: It's just another thing to carry. But build it into something you always carry -- a phone -- and tie it to any number of credit and debit lines, and then you have something.

Google officials declined to comment ahead of Thursday's announcement.