Credit cards are so last decade. The new hotness in ultra-convenient payments is powered by near field communications, or NFC, chips.
What's that?
The idea is simple: Swipe your phone at a retailer's checkout station, tap a button on your screen to authorize the payment, then leave the store as a proper, paying customer. Behind the scenes, the NFC system double-checked your identity, sent your preferred payment credentials to the store's computers, and handed the actual payment process off to either your bank or your favorite credit card issuer.
You're simply moving the functionality of a quick-swipe credit card into your phone, removing one more item from your leather wallet to empower its digital cousin.
This stuff has been around for some time, but in purely experimental ways. Nokia (NYSE: NOK) has been shipping NFC-enabled smartphones for a while now, though that hardly matters in North America, where the company has all the consumer clout of Carrot Top or OJ Simpson. The most recent Android reference model from Samsung and Google (Nasdaq: GOOG) comes a little closer to a real end-user implementation for the average Yankee, but retailers haven't jumped aboard that ship yet.
So, what's new?
All that is changing now. A domestic NFC payments system is set to go nuclear after building up to critical mass. Google just announced a nationwide launch of its new Google Wallet system, which puts the financial know-how of Citibank (NYSE: C) and MasterCard together with the data and transaction handling expertise of Sprint Nextel (NYSE: S) and First Data to create the first real-world example of NFC technology in action.
Most of the launch-ready merchants are found in San Francisco and New York, but Google's partner locator already shows a few compatible businesses in my Floridian neck of the woods. Outlets already sporting those handy little PayPass readers for chip-girded MasterCards stand a greater chance of showing up, because that's what your phone would talk to.
So it's still kind of limited. To use this stuff at launch, you need the right kind of MasterCard issued by Citibank and nobody else. That Nexus S reference model is still the only Android phone to carry NFC chips, and you'd need the Sprint model to boot rather than its siblings offered by other networks. That's a lot of boxes to check just to qualify for Google Wallet payments.
These constraints should disappear eventually as NFC chips become more mainstream while other banks and credit card issuers join the bandwagon. So far, we're just looking at a very public proof of concept.
But wait -- there's more!
Google Wallet actually goes a little bit beyond a pure payment service. The in-store connection will also send some data the other way, potentially pumping your phone full of digital coupons, ads, and other offers. Your digital wallet would also hold commonly used store loyalty cards, store digital receipts for everything you buy, and in due time also save some trees by handling boarding passes at the airport, theater tickets, and whatever else for which you'd usually receive a hard-copy printout.
Again, none of this is exactly new -- advertising firms have been working on location-based mobile ads since at least 2006, for example. TIBCO Software (Nasdaq: TIBX) sees a great market for its real-time data analysis tools where retailers grab the opportunity to tell you of a great sale two aisles down. The new thing here is the combination of payments and marketing, together with the supreme convenience of doing everything on your phone with the tacit approval of that crucial screen tap.
Google's solution stands alone right now, but others will undoubtedly join the fray in short order. Like I said, Nokia already has this NFC idea in play across the globe -- we're just waiting for a compatible American network.
Winners and losers
Rumor has it that the next iPhone might gain NFC powers, which would undoubtedly bring MasterCard archrival Visa (NYSE: V) into play. In fact, I fully expect Visa to join the Google Wallet program soon enough. One service may eventually rule them all, or perhaps we'll see a loosely connected mishmash of standards-less competitors. Either way, the old-line payment handlers will find a way to participate in anything that matters. Just because plastic cards are going out of style doesn't mean that the credit card companies are outdated -- they're just moving to a new hardware platform.
The one surefire winner in the NFC revolution is chip designer NXP Semiconductors (Nasdaq: NXPI), which supplies NFC chips for all of Nokia's smartphones and also the Google Nexus S. Oh, and Uncle Sam gets to save billions on unprinted dollar bills and unminted pennies.
I have seen the future, and it's comfortingly familiar. Just leave your cash in that cigar box under the petunias.
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