Smartphones Are Turning into Wireless Wallets

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By some time in 2014, or maybe before, you might be able to stroll into just about any store, collect items in your physical shopping cart, whip a smartphone out of your pocket, and slickly pay for everything simply by tapping your phone on an NFC (Near Field Communication) terminal.

Yet despite a slew of recent NFC announcements by Google, RIM, Samsung, and wireless carriers the world over, NFC could get much of its initial real world use more tamely, as a method of sending coupons and other marketing stuff to your phone.

Samsung Nexus S with Google Android OS 2.3NFC, an offshoot of RFID (Radio Frequency Identification), is getting bandied about by lots of companies as a replacement for the gaggle of cash and credit cards that cram people’s wallets.

Companies Are Getting on Board
Late last year, Google rolled out the Samsung Nexus S, the first phone with NFC support to hit the US market. At about the same time, three of the top U.S. carriers — Verizon, AT&T and T-Mobile — teamed with Discover and Barclays Bank for an NFC joint venture called ISIS.

Then, at the Mobile World Congress (MWC) in Barcelona last month, Samsung unveiled plans for two new NFC phones: the Android OS 2.3-based Galaxy S II and Bada OS-driven Wave 578. ZTE chimed in with the Android OS 2.3-based Skate phone. RIM announced a sweeping NFC initiative for future smartphones and tablets. Qualcomm joined suppliers such as NCR, Samsung and Inside Secure in the NFC chipset ring.

Just over this past weekend, word leaked out that RIM and Bank of America are now planning an invite-only NFC trial called Mobile Wallet, to revolve around so-called “tap and pay” Visa debit card/MasterCard credit card purchases from smartphones at NFC terminals in stores.

Not all the news is good, though. Rumors flew a few weeks ago that Apple has decided to NFC-enable its next generation of iPhones and iPads, but this has since been debunked.

Some Analysts Are Behind NFC, Too
Big analyst firms are releasing glowing predictions for NFC, but you have to read between the lines to see the full picture. In one report, the Yankee Group estimated that the numbers of NFC smartphones in end users’ hands will soar from 1 million in 2010 to 151 million by 2014.

Over that same time frame, the value of global “NFC-enabled transactions” will skyrocket from $37 million last year to $40 billion, according to Nick Holland, the senior analyst who authored the study. By “transactions,” though, Yankee Group means not just “mobile payments,” but also “mobile coupons” and “mobile marketing.”

Howard Wilcox, an analyst with UK-based Juniper Research, noted that NFC payments by smartphone have long been popular in Japan (although just about nowhere else). As Wilcox sees it, with major carriers in places like the US, UK and France now jumping aboard the bandwagon, the global transaction value for NFC should top $30 billion by 2012. Yet it won’t be until 2014 that North America and Europe experience “high growth” in actual mobile payments through NFC, Wilcox says.

“There are tremendous numbers of phones out there in the installed base that are not NFC-enabled,” Wilcox elaborated in an interview. “Meanwhile, retailers will need to install NFC terminals in their stores. There will be a changeout cycle, and it will take NFC some time to reach critical mass.”

Part 2 of this special report covers the competition between NFC and a rival technology, 2D barcodes. Part 3 covers security concerns with NFC

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