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NFC Technology: Is a Credit Card Free Future Near?

Even if this year's iPhone 5 doesn't incorporate the much-hyped Near Field Communication (NFC) capabilities, a future without credit cards is pretty much guaranteed. But don't go cutting up your prized plastic just yet. A complete system overhaul is still a ways off.

How is a credit phone possible?

NFC – the tiny chip inserted in your smartphone or smart device that allows a purchase or transaction to be made simply by waving your device near a reader – has been a hugely successful technology in some parts of Asia and, in a much more limited scope, have popped up here and there in the US and Europe. The chips can send and receive data, and if attached to your bank account will deduct payment on the go, letting you charge as you chat.

Is it already available?

Kind of. Flashy mobile credit opportunities are very popular, from the Starbucks Card mobile app (which produces a bar code on a smart phone screen for baristas to scan) to Boston's tap-and-go Charlie Card on the subway. They function similarly to, but do not use, NFC – which is unique in that it can transmit and receive information (as opposed to just transmit). As far as NFC goes: Japan has a huge plastic-free population, deferring to osaifu keitiei ("wallet phones") instead. The UK phone company O2 ran a trial for mobile credit in the mid-2000s and which resulted in above-average reviews, even though the technology has yet to take off on a mass scale. British credit card company Barclay announced that all of their new debit cards will be outfitted with an NFC chip so, even though they still will distribute cards, they will not have to be swiped, merely waved around in front of some sort of reader. And remember McDonald's and Walgreens with their half-hearted push for PayPass back in 2005? That technology is still available – most people just don't use it.

Will Apple change everything?

It's rumored that Apple's new iPhone 5 will feature NFC technology and start the ball rolling toward a card-free future in a big way. Because the iPhone and iPad are so popular, predictions indicate that if iPhone lovers start using NFC payment, everyone else will follow along. Now, is that going to happen in the first month of the iPhone 5? No. It won't even happen in the first year, or two years. But if Apple successfully markets NFC credit, you can bet it will become the trend du jour for other phone carriers and banks.

What is standing in the way of NFC?

Three major factors:

  • First: getting users to trust it. Credit card fraud is still a major issue even though credit cards have been around since the 1920s. A new form of credit payment will understandably have its own sets of risks that will need to be addressed before it is accepted en masse: what sort of security will need to be in place? If someone gets your phone, do they have complete access to your bank account?
  • Second: getting venues to support NFC. NFC requires some sort of reader to work. Purchasing new technology is expensive and unless Apple (and any other NFC opportunists) can prove that NFC is a worthy investment, many retailers won't bother. We saw that with PayPass in 2005.
  • Third: convincing both retailers and consumers that NFC is here to stay. Since swiping a credit card isn't particularly difficult or time consuming, Apple and any followers will be marketing cutting edge over convenience.


The end of credit cards?

Don't worry. Your favorite credit card will still be useful – especially if you're the proud owner of a rewards card or business card. New NFC technology will be starting from scratch and won't have established rewards programs like your favorite credit card. In addition, many analysts and predictions show that credit cards may never be eliminated completely: they'll just have to share the stage with new forms of payment, such as phone credit.

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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NFC Jobs's picture

No real suprise here, the question is not whether apple will have it but whether retail outlets will accept it, and shell out the capital expenditures for the hardware.