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Will Wal-Mart Be the Death of Near-Field Communications?

According to a recent Harris Interactive survey, most consumers feel smartphone payments will eventually replace credit and debit cards and cash for most purchases but it's likely not going to happen within the next five years.

That bodes well for the long-term outlook for chip makers like NXP Semiconductors (NASDAQ: NXPI  ) and Skyworks Solutions (NASDAQ: SWKS  ) , which are leaders in the field of near-field communications, or NFC. That's the technology that allows mobile devices to securely communicate with a payment terminal. Wave your NFC-enabled smartphone in front of an NFC-enabled terminal and you can easily make a payment.

Objects are closer than they appear
The interest expressed in the survey is part of the reason behind why NXP feels 2013 is the year that NFC technology takes off. Google (NASDAQ: GOOGL  ) has been in the forefront of the issue through its Wallet mobile payment system and Android smartphones like Samsung's Galaxy have been equipped with NFC chips to take advantage of it wherever it's available. Indeed, Samsung recently partnered with Visa to provide an NFC platform that financial institutions can trust.

Banks will be able to load payment account information to a secure chip embedded in Samsung devices using Visa's mobile provisioning service linked to Samsung's service that creates secure data storage domains for card issuers.

Notably, however, Apple (NASDAQ: AAPL  ) has yet to jump into the fray. Although many watchers had anticipated the iPhone 5 to include an NFC chip, it was not to be, even though it had acquired such capabilities through its AuthenTec acquisition last year. And with Skyworks already a chip supplier for the iPhone, should Apple decide it needs to be a part of the NFC revolution, it has ready access to a key player in the field.

Scanning the horizon
Yet retail king Wal-Mart (NYSE: WMT  ) may be leading the way in killing off the chances of NFC gaining a real foothold. Rather than investing in the expensive new terminal upgrades that would be required to make NFC in its stores a reality, it's rolling out an iPhone app called Scan & Go that allows consumers to scan and bag their purchases while shopping and simply scan a quick-response pixilated QR code square at the checkout terminal to complete the purchase.

While that may be a means for it to ultimately save money on cashier salaries, it could provide the pathway for other retailers to follow. Wal-Mart is expanding the test program to 200 stores in 14 markets, and though the app is only available for the iPhone, it's easy to see that (depending upon its success) it could eventually roll out to all 14,000 stores and be available across all smartphone platforms.

Stop & Shop supermarkets have offered a similar app for both iPhones and Android devices for several years, but Wal-Mart's entry could be the thing that brings it mainstream. Because near-field communications has taken longer than expected to get up and running, just as widespread adoption looks to be within its grasp, Wal-Mart's adoption of competing technology could be what kills it off. 

Let me know in the comments box below if you think NFC will die on the vine or will be able to surmount what appears to be a very high obstacle thrown in its path.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 09, 2013, at 11:02 AM, Attentive wrote:

    NFC wins in the long run for the same reason that cloning of mobile/cell/smart phones has been eliminated.

  • Report this Comment On April 09, 2013, at 5:29 PM, BuyCake wrote:

    It would make sense for scanning QR codes to win out simply because that would be a software update to existing hardware (scanners are already in place to scan barcodes). It would be quite the investment to upgrade to NFC terminals.

    On the other hand, I'm not sure if either technology will really "win out". Because not all retailers accept credit cards, you are forced to carry cash (or an ATM card and know where to get cash if needed). NFC payment options seem to be getting more widespread, but never will ALL retailers offer the service, so you'll be forced to continue carrying your credit cards.

    Why would I want to carry two items that can lead to lost or stolen credit cards? I've already got the credit card in my wallet, why put it in my phone? I'm not sold on the NFC payment idea to begin with.

    (Not to mention the millions of people who, gasp!, don't own a smartphone.)

  • Report this Comment On April 15, 2013, at 11:25 AM, orangefloyd wrote:

    I've used the NFC terminals with the RFID chip in my credit cards for years... it's not really an improvement to the normal checkout process, and clearly most people are completely unaware of it, even the people checking me out at the store look at me like I'm a moron when I hold my card up to the terminal scanner and they say things like "you have to swipe it", and then are completely surprised when it goes through.

    Where NFC needs to make inroads, and where it will take off if it does, is on vending machines. This is where it's been in use successfully for years in places like Korea, and it's a major convenience update to that process, not to mention will vastly improve the chances that I'll make a purchase as I only rarely have the cash in amounts and denominations necessary to actually use on a vending machine. Even vending machines that already take credit cards, like Redbox, the process can be a little clunky and would be improved with NFC.

    @BuyCake, I've hardly carried cash at all for the past decade, vendors that only accept cash are so few as to be irrelevant (in my sphere of experience). The same may become true with these other payment methods, over time. People vote with their wallets, in this case quite literally by leaving them at home, just like many of us currently leave our cash at home.

    The main issue why I hope NFC wins out between it and something like the QR code solution presented here is because I don't want to download an app for every store I purchase at. I don't want to have to go searching for that app when I'm in the store, I don't want to have to open anything up... I just want to grab my phone out of my pocket, hold it up to the terminal, and be done with it. NFC makes that possible. I just won't use the QR codes unless it gets abstracted out to a single common app that will work with all stores as a service. Even then if it must interrupt whatever else I may be doing with the phone at the time, it'll be less than ideal.

    But we'll see. If iPhone users who shop at Wal-Mart are willing to put up with it in significant numbers, my logic may not be enough to stave it off.

  • Report this Comment On October 24, 2013, at 1:06 AM, Jester88 wrote:

    iPhone users and Wal Martians just seem odd in the same sentence but maybe not.

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