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Even with Apple involved, NFC mobile payments may be slow to catch on

Reports that the next iPhone and iPad could include Near Field Communication (NFC) technology have raised the prospect that many more consumers in the U.S. will soon be able to use their devices to pay for almost anything—a candy bar, a subway ride, a parking space, or a bag of groceries.

But while flashing a phone near a station to make payments sounds easy, it really isn’t.

If NFC mobile payments were simple, the technology would already be inside mobile phones and in wide usage in the U.S., some analysts have argued. The technology became available in 2004 and is used fairly widely in Japan and Korea. And it has been deployed in several European cities, mainly for transit systems.

So why is the U.S. late to the party? Aside from the actual wireless NFC software and hardware inside a phone, NFC-based mobile payments require a collection of systems and technologies, including an electronic transaction system—or a collection of transaction systems—to work.

Such transaction systems would function in a similar way to credit cards that are swiped for the user’s information contained in their magnetic strips.

Before Apple came along, NFC also required banks, merchants, phone makers and wireless carriers to agree on transaction fees and technical specifications that allow interoperability between phones and receivers. In other words, there is a lot of politics involved with NFC.

One of the foremost analysts in electronic payments, Bob Egan of The Sepharim Group, has noted the logjam between the various parties interested in NFC over recent years. Egan said in a Twitter post last summer that he was thrilled to hear Apple had hired NFC expert Benjam Vigier, but has been cautious about NFC growth.

“NFC in handsets is meaningless without the rest of it, including agreements between parties, infrastructure, processing procedures for data, security and reconciliation of accounts,” Egan said more recently.

Those factors are already in place in the credit card world, Egan noted. Even if mobile phones used for mobile payments double in number by 2014, as some analysts forecast, the total value of the transactions they make will only be 1 percent to 3 percent of all transactions conducted via credit cards or checks, Egan said.

Egan estimated there are 230,000 contactless credit card readers in the U.S. that can read credit cards with a smart chip installed. They are installed in the U.S. at fast food restaurants and retailers, and could be upgraded fairly simply to read NFC signals from mobile phones. But he said those devices have not yet been widely used.

Jack Gold, an analyst at J. Gold Associates, said NFC won’t do as well in the U.S. as elsewhere, partly because of the reluctance of consumers to have their wireless carriers act as credit card companies.

Even with Apple’s potential interest in NFC, Gold said, “I still believe that NFC will not be a big success short term in the U.S., which is different from other markets,” Gold said. “Mobile payments in the U.S. is going to depend on carriers and how they are perceived by end users as much as the technology on the device.”

Gold predicted a slow adoption rate of the technology, although he said Apple might be able to stimulate demand through special discounts at various venues and stores.

Other analysts are more intrigued with Apple getting involved in mobile payments, noting the enormous 160 million iTunes customer base that would allow Apple to sidestep banks and carriers by connecting directly to those customers through NFC-ready phones.

Still, even without Apple, other countries such as Japan and Korea, especially, have NFC in mobile phones to pay for transit and retail purchases, but notably not for big-ticket items.

The NFC Forum, which has published many specifications for developers to use in building NFC gear, recently published a 29-page white paper (PDF document) that describes numerous uses of NFC in public transit for ticket payments and more.

The paper cites a successful trial of NFC at the BART transit system in San Francisco in 2008, where ViVotech technology enabled hundreds of commuters to ride BART by waving NFC mobile phones at the gate to gain access to the trains. Users could also use the phones to pay for Jack in the Box meals near train stations or download directions to the restaurants by flashing the phone over an NFC smart poster.

Other transit and long-range rails systems using NFC are profiled in the report, including in several cities in Germany and an NFC trial in London.

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