By guest author Nalini Kumar Muppala
Wallets and key chains appear to be next on the list for convergence as the smartphone juggernaut rolls on. Near field communication (NFC) is the technology that promises to enable this. The promise and allure of NFC in phones are to not just make the wallet leaner and the key chain lighter, but to make the experience of using a phone more enriching and to enable use cases currently not possible. The possibilities are numerous: NFC has the potential to enable a wide range of applications, and many ideas yet to be conceived.
Let me illustrate the potential of NFC with a real problem and how the evolving landscape could use NFC to solve it.
By one estimate, 40% of India’s 1.2 billion people do not have access to formal banking. They are unable to put their savings in a safe place. (Yes, even the poor save in low-income countries; the difference is in the degree). The credit needs of this un-banked population are currently met by loan sharks, who charge exorbitant interest rates. Microfinance could be the solution, and it has been gathering momentum, but the reach is still small. Big banks need to step in to provide wide access to microfinance, but they are hesitant do so. The situation is such for two reasons:
1. There is no easy way to verify identity (existing forms of identification are far from unique). The Unique Identification (UID) project envisions providing an unique ID for every resident of India. This project, headed by Nandan Nikekani, cofounder of Infosys Technologies Ltd., is currently undergoing field trails, and there are plans to start issuing cards in February 2011. Among other uses, UID will provide a means for financial institutions to quickly and economically verify the identity of an applicant.
2. Physical banks in rural areas are few and far apart. Microfinance institutions send out agents known as business correspondents to tender and collect loans. This approach – one person wielding cash as the sole point of contact with a bank – is subject to abuse. This process could be simplified and scaled well if regular mom-and-pop stores are equipped with devices that allow users of NFC phones to carry out bank transactions. This approach would be much more efficient than carrying out individual transactions directly with the bank over the Internet. Transfers between people, of course, could be done without a visit to a local business correspondent. Just as sections of India’s population skipped landline telephones and leapfrogged to mobile phones, they can skip teller counters and start banking on electronic devices such as mobile phones.
NFC thus holds a lot of promise to solve real problems. I would be surprised if Nokia, which enjoys a dominant market share in low-income economies like India, and Bharti Airtel, the biggest multinational organization (MNO) in the country, are not already at work on NFC-enabled microfinancing and mobile banking solutions.
Over a series of posts, I will delve into the NFC ecosystem and present to you some background, hurdles faced by NFC in the past, reasons why NFC is poised to take off, hurdles to adoption now, strategy and product offering of major technology providers, and what needs to happen for successful adoption. First, let’s take a brief look at the history and basic technology.
NFC is a short-range wireless connectivity technology based on standards. NFC facilitates communication between electronic devices that are in proximity – typically less than 10 cm apart. It operates at 13.56MHz and transfers data at speeds up to 424Kbps. NFC data transfer rates are much slower than Bluetooth (BT) and wireless LAN (WLAN). NFC asks these technologies to take over when the situation demands faster data transfer rates than it can handle. In order to be compatible with existing contactless and RFID infrastructure, NFC incorporates several pre-existing standards. An NFC-enabled phone can thus act as a contactless payment card. Devices are governed by specifications agreed upon by NFC Forum members.
NFC’s benefits are all the more evident in its abilityto operate in multiple modes
• card emulation: NFC device mimics a contactless card.
• reader mode: NFC device is active and reads a passive RFID tag (e.g. on a smart poster.)
• peer-to-peer mode: two NFC devices communicate to exchange information.
Why bother with another wireless technology when we seem have enough in the form of BT and WLAN? The allure is in the ease of use and of setting up and tearing down connections seamlessly. The need for little configuration enables use cases not possible with existing connectivity solutions in phones. Finally, it fits well with the mobile phone requirement of using little power.
The old joke, “Brazil is the country of the future – and always will be” comes to mind. NFC has been touted as a technology about to go mainstream since its inception in 2002.
In spite of several broken promises and failure to deliver in the past, industry watchers are still optimistic and convinced that the potential is great. ABI Research predicts that 300 million NFC chips will be shipped in 2015. IMS Research is even more optimistic and pegs its estimate at 785 million NFC chips for the same period. In addition to mobile phones, these chips could be targeting computers, consumer electronics, peripherals, and merchant terminals.
Caution is needed because NFC has been waiting in the wings for some time. However, after failing to deliver on its promises for several years, NFC seems poised for commercial success in 2012–2013. The groundwork for a successful ecosystem is being laid.