An article in the July 1995 edition of Popular Science first covered commercial applications for a "digital wallet." Most of these concepts are still relevant today, and many are still in use. However, in the past 16 years since the article was published, there have been many improvements to the "digital wallet" concept. The most recent innovation includes adding near-field communication to smartphones on a broad scale.

This will enable not just digital wallets, but a broad range of innovative ideas that will create a new segment of smartphone app development.

Near-field communication (NFC) allows brief and semi-secure communication between two devices based on close proximity. NFC is a standardized form of data communication that generally uses radio frequency (RF) devices to communicate.

You may not know it, but you probably see this very often in shopping tags, stickers, key fobs, security cards, and in many other places. For example, if you buy a CD or DVD, you often see a sticker on the inside cover that, if peeled off, has a printed metal circuit. This is a radio frequency identification (RFID) tag.

NFC can take multiple forms, but often involves one device acting as target (storing the information to be read – usually read only) and the other acting as an initiator, which can wirelessly power the target to read the information it stores.

The benefit to putting NFC capability onto mobile phones is that you provide power to both ends. This means that instead of a target-initiator process which basically provides one-way communication, you can have a target-target process which allows peer-to-peer communication. Since both ends are powered, they can change and update the information that they send, rather than just acting as "read only."

NFC has a few limitations, but also many benefits. Specifically, it can only communicate across a very small distance, usually a few centimeters, which makes it very hard to intercept the data exchange. This means that users can "swipe" a NFC device (like a security card) across the reader and very quickly share small amounts of information.

What does NFC Mean for Mobile Payments?

The biggest benefit to NFC is that it allows users to use their phones to do much more than they can currently.

The most obvious example is through mobile payments. By incorporating NFC into mobile devices, users could simply swipe or tap their phones on electronic readers in stores instead of using a credit card or cash. According to Bloomberg, 35 million NFC phones will ship this year, and 70 million NFC phones will ship in 2012. They also estimate that by mobile payments will account for $245 billion by 2014, up from $32 billion last year.

Basically every major carrier, credit card company, mobile device manufacturer, and technology company has announced launching some sort of NFC mobile payment system this year. This includes Apple, Amazon, American Express, AT&T, Bank of America, Discover, HTC, Google, Microsoft, Motorola, Nokia, Sprint, T-Mobile, Verizon, and Visa, as well as many others. Many of these companies are also launching joint partnerships to try to create an industry standard system that involves manufacturers and retailers.

Some of these systems involve NFC compatible cash registers and a partnership with credit card companies to allow the phone to charge to an existing account. However some others would basically turn the phone into its own credit card and the charges would show up on your monthly phone bill.

Security and Privacy

Although no system is entirely secure, NFC does have many benefits. Most prominent is the physical proximity required for devices to be read. With certain hardware this can be extended to a few meters, however mobile systems will likely be limited to a few inches at most. This means that intercepting information exchange will be extremely challenging.

Secondly, these are not static RFID tags which store the same information all the time. The mobile device has the capability to write and rewrite information. This is important because if you are going to share sensitive information through NFC (a credit card for example), the information can be written, shared, and then erased very quickly. For example, if you wanted to make a credit card payment with your phone, you would open up your app and approve the charge. This would then load the information to be read by the NFC reader, and would erase the information once it had been shared.

In the meantime, all the information would be stored and encoded in a secure area to prevent anyone from reading it just by standing close to you with specialized hardware.

From a marketing perspective, this also gives retailers and others more information about who is buying their products, including basic information that may not otherwise be easily available. This is probably less information than is usually exchanged when you use a membership or discount card, but its universal use has the potential to raise privacy concerns for users as well.

Benefits of NFC

Beyond mobile payments, NFC has the potential to provide many benefits and conveniences to smartphone users. Once the hardware is in place it will largely be up to the mobile app developers to create and invent the software features, but there are many ideas already in place.

Exchanging Contacts

The short range peer-to-peer communication of NFC would allow phones to very quickly swap contact information, which could be very helpful at networking events or other meetings, rather than swapping physical business cards or manually typing in information.

There are a few other services that try to exchange information through the web, but these can be a bit slower and more difficult to use, as well as requiring a lot more typing and searching. A NFC system would make exchanging contact easy.

Accurate Check-ins

Social Check-in services like FourSquare, Facebook Places, Google Latitude, Ogwalla and many others allow users to share their location with friends by "checking into" physical locations. In turn, many of those places (restaurants, clubs, concerts, etc.) provide deals based on those check-ins. This is especially useful for rewarding the most loyal customers as well as providing incentives to new customers to visit.

However, verifying the user’s location is dependent on GPS, which is not always accurate and can be easily spoofed. Using NFC for verification would provide much more guarantees, which would provide more incentive to businesses to use it in their social marketing efforts.

Easy Ticketing

Have you ever bought a ticket online and then had trouble printing it (or losing it) before the big event? NFC could provide a very easy way for users to buy a ticket online for movies, concerts, airlines, public transit, or just about anything else, and instantly have ticket verification on your phone.

In theory this would work by providing a secure code to the device that could then be "swiped" at the entrance through NFC. Not only would this save paper and the potential frustration or losing your ticket (unless you lose your phone too), but also save time by potentially letting you skip lines at the door.

Advertising

Many advertisements and billboards invite users to visit a website to find out more information. However, advertisers know that typing a URL on a phone is a clunky step and that most users simply won’t do it. To overcome this, they have come up with a few tools which make that step a little bit easier. One of these is the QR code.

By scanning the code with the phone’s camera, users will be taken instantly to the predefined URL. This also lets advertisers build in different URL tags with mark the specific advertising campaign and other important information so that they can track the impact of specific efforts.

However, even QR codes are a bit clunky and not every user knows how to use them, or has a device that can read them. By incorporating NFC into advertisements, especially storefronts, displays or other ads that have a close physical proximity to users, the user can simply hold their phone near the ad and quickly download the information. It could be a coupon, an image, a web link, or any bit of information.

Medicine

RF tags are already widely used in medicine and can do everything from track medications to report on blood sugar levels. There are currently a few different options that allow this information to sync with your phone, however many of these require additional hardware.

By integrating near-field communications directly into the device, it would make it much easier to build medical devices and services that can take advantage of it. For example, rather than taking a blood sample to test the sugar levels of a diabetic, an implanted device could transmit to the phone and provide easy and non-invasive updates.

Imagination

Once the hardware is in place, it is really up to the creativity and imagination of the developer. Each idea is developed as a software solution and becomes its own "app." The question for enterprising entrepreneurs is "what will you do with NFC?" Near-field communication simply provides the opportunity to quickly lock users together and share small bits of information. What that information contains is up to you.

Do you have an idea for a NFC Smartphone application? Our mobile app development team has the skill and experience to develop your idea into a successful application.