What Is Near Field Communication? How to Use It and Why It’s Important

With contactless payments and accurate inventory management becoming more important in a post-pandemic world, near-field communication (NFC) technology has gone from an optional extra to an essential.

Customer expectations surrounding payments have shifted. Right now, 65% of US consumers would prefer to use contactless payments post-vaccine, while 47% won’t shop at a store that doesn’t offer a contactless way to pay. 

And right now, there are more than two billion NFC-enabled devices worldwide—translating to more than 20% of the world’s population having access to NFC. As NFC becomes more accessible and customers expect it as a payment option, there’s no better time to learn what NFC is, how to apply it to your retail business, and its key benefits. 

What is near-field communication?

Near field communication is a type of short-range contactless technology that needs a distance of four centimeters (1.5 inches) or less to enable connection. NFC lets you share small payloads of data between two Android devices or an NFC tag and an Android device. 

In practice, this contactless communication looks like users waving a smartphone over an NFC-compatible device to send information without needing to touch the devices together. There’s no need to go through multiple steps to set up a connection. 

Apple Pay, Google Pay, and Samsung Pay are some popular examples of how consumers use NFC to make purchases. NFC transactions are quick and efficient—it hardly takes a few seconds for a transaction to go through. It’s also secure for users, since it has multiple layers of encryption. 

How does NFC work?

NFC has been around for longer than you think. It’s essentially an advancement of RFID (radio frequency identification technology), which has been used for decades. If you’ve ever used a key card to enter a hotel room or office building, you’re already familiar with the principles of technology. 

NFC and RFID rely on inductive coupling for short-range connections. This involves the reader device creating a magnetic field by running an electric current through a coil. When a tag (with its own coil) is brought near, the field generates an electric current within the tag without physical contact or wires. 

Once initial contact is made, any stored data on the tag is wirelessly sent to the reader. 

NFC has a maximum range of a few centimeters, and in most smartphone apps the software will only start communication if there is physical contact. This is to prevent accidental connections—which is important, since the technology is often used for transferring sensitive data. 

NFC devices are bidirectional, meaning they can act as a tag or a reader. That means you can use your mobile device or other hardware for both applications. 

EMV vs. NFC

EMV stands for “Europay, MasterCard, and Visa.” It enables a transaction between a chip card and an EMV-enabled payment terminal. It’s a key component of the modern payment landscape since it’s also viewed as a global credit card processing standard that protects payment data. 

The key difference is that EMV is a payment method that revolves around chip-enabled cards and readers, while NFC technology is a payment type that enables contactless transactions.

While chip-enabled EMV cards need to be inserted into a card reader, NFC payments enable contactless or “tap and pay” functionality. Simply bringing an NFC-enabled smartphone or card to an NFC reader will process the transaction.

NFC retail applications

• Accepting payments
• Inventory management
• NFC tags

In retail businesses, NFC applications include the following: 

Accepting payments

It’s easy to take payments using NFC technology—there’s no complicated set-up process for vendors or customers. All you need is an NFC-enabled device, like a smartphone, tablet, or NFC-enabled card reader. Customers can then easily hover their own NFC-enabled device or card near your POS system to make payment. 

This technology allows customers to choose their preferred mobile wallet system, like Apple Pay, Google Pay, Samsung Pay, or a physical NFC payment card to make purchases.

Taking payments using NFC technology is more efficient. Since it only requires devices or cards to hover above a reader, you’ll be able to take payment from customers more quickly and move through lines efficiently. You won’t need to have as many staff working at your store checkout either.

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Inventory management

Retailers that need to process and manage high volumes of inventory will benefit from using NFC tracking methods. 

You can purchase pre-encoded NFC tags with sequential numbers and link the NFC tags with the inventory items using a QR inventory application. Once inventory items are labeled with NFC tags, you can track them with an NFC-enabled smartphone—either one that has the chip or through a QR inventory app. 

Unlike QR or bar codes, you don’t need a direct line of sight to scan an NFC tag—the tag can be on the inside of the packaging or product casing. This allows for much faster inventory scanning and processing. 

NFC tags 

NFC tags can help you improve in-store customer experience or encourage consumers to engage with your brand outside of your physical location.

In addition to accepting payments in-store, Alexa Allamano, Shopify merchant and owner of jewelry store Foamy Wader, uses NFC tags to market her business and help convert window shoppers into buyers. 

We use NFC for accepting payments in-store, collecting new email subscribers, and directing window shoppers to complete their order online.

Out of store, NFC tags can extend the shopping experience and encourage customers to interact with your brand on a more personal level. For example, alcoholic beverage manufacturer Pernod Ricard enabled 300,000 bottles of Malibu Rum with NFC tags and created an experience that allowed people to “engage with games, enter competitions and receive recipes for cocktails,” according to NXP.

Given that NFC tags are so simple and intuitive to scan, customers can easily engage with your brand when it suits them. 

Benefits of near-field communication for payments

The use of NFC for payments is on the rise. In fact, the near-field communication market is expected to reach $ 21.5 billion by 2024, at a compound annual growth rate of 17% between 2018 and 2024. Let’s look at the benefits driving this growth. 

Security

NFC transactions are considered secure, since NFC signals use a specific RFID radio frequency (13.56 MHz) that only works when the chips are very close together (four centimeters or less). Unlike wireless internet connections, NFC cannot be hacked from long or close distances. And the data passing between the two NFC devices is encrypted. 

Smartphone security protocols help make NFC payments even safer for consumers. Along with protection from the tokenization of sensitive and personal data, smartphone e-wallets come with other layers of security, like passwords and biometric security.

Speed

According to PwC, nearly 80% of US consumers consider speed and convenience to be among the most important elements of a positive customer experience. And 43% of consumers would pay more for greater convenience. 

Customers will nearly always go for the fastest, most convenient, and simplest option. NFC POS readers make transactions easy as customers only need to hover their smartphones or NFC cards near the reader to make a payment.

Shopify merchant My Supplement Store uses near-field communication throughout its physical retail stores to improve customer experience, speed up the checkout process, and lower its staff number on shift. 

We have terminals that allow for contactless payment on anything they purchase. It makes their shopping experience quick, painless, and allows us to work with more customers in the store with fewer staff.

Similarly, Alexa of Foamy Wader likes to give her customers more payment methods and speedier processing. 

It’s only a matter of seconds, but the speed of NFC payments is noticeable compared to credit card swiping and chip dipping. NFC also allows shoppers to leave home without their wallet, which has come in handy for joggers and dog walkers to use their phones to make impulse purchases.

Unlike EMV card payments, where customers need to insert their card, enter a PIN, and wait, NFC-enabled transactions are usually quick and simple.

Contactless

NFC payments aren’t just about faster and more secure payments. There’s also the increased physical safety that contactless transactions bring both consumers and vendors—especially important in the context of the pandemic. 

Phil Sealy, research director of ABI Research spoke about how COVID-19 has increased NFC usage.

NFC use in payment scenarios pre-COVID-19 was high but, post-COVID-19, we predict that NFC will be extended to other use cases, as consumers are showing an increasing reliance on the technology.

A survey conducted by the NFC Forum found that, pre-COVID, over 40% of consumers surveyed used contactless payments daily or almost daily, most with a smartphone. Now though, more than 75% of respondents use contactless payment methods multiple times per week.

Instead of having to exchange potentially germ-ridden cash or touch the same EMV payment terminal, NFC contactless payments provide a safer payment method that doesn’t require any physical interaction. 

Start accepting NFC payments at your store

Given NFC is simple, intuitive, and accessible for smartphone users, it makes sense to explore how you can use the tech in your retail business. All you need is an NFC-enabled device and you can start accepting contactless payments from customers. 

If you’re already accepting NFC payments, think about how else you can use the tech across your retail business to enhance customer experience and streamline your inventory management.

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