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Does NFC Still Have a Future?

By Chris Neiger - Feb 15, 2014 at 11:05AM

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Near field communication was considered the mobile tech of the future a few years ago, but now Bluetooth Low Energy is moving in on its turf.

Some technologies over promise and under deliver. They never quite reach their potential, either because of poor implementation or because something better comes along and pushes them out of the way. Near field communication, referred to as NFC, is one such tech that hasn't reached its full potential. Google (GOOGL -0.31%) has pushed NFC for years now, while Apple (AAPL -0.09%) has been a strong opponent. But after years of trying to get NFC off the ground, security issues and a lack of standardization has hurt NFC's efforts.

Close, but no cigar
One problem that's plagued NFC is security. While it's possible for NFC to be a secure technology for mobile payments, the issue is how the security level is reached. When Google was first pushing NFC payments through Android, wireless carriers didn't want to hand over the security aspect to Google. Instead, they wanted to use their own ISIS system for mobile payments, and keep some of the payment controls to themselves.

To get around this, Google's latest version of Android, called KitKat, created Host Card Emulation (HCE) to allow any NFC-enabled phone to use the Google Wallet app to make mobile payments. Google said on its Android site that:

With HCE, any app on an Android device can emulate an NFC smart card, letting users tap to initiate transactions with an app of their choice -- no provisioned secure element (SE) in the device is needed.

This work-around is just one example of the lack of standardization with NFC.

But that hasn't stopped some from predicting that NFC will still take off. Analysts at IHS recently predicted that 1.2 billion NFC-enabled smartphones will be in use by 2018. That would be up from the estimated 416 million NFC-enabled smartphone shipments this year.

Despite those numbers, wide-spread implementation for NFC mobile payments has still been slow. Which has led to other alternatives starting to surface. Namely, Bluetooth Low Energy, or BLE.

An old tech with new purpose
Bluetooth Low Energy sends and receives small amounts of data to and from receivers, using a small amount of battery usage. It can be used for anything from mobile payments to location-based production information.

BLE has gained some attention recently because Apple is using the technology for its iBeacon initiative. iBeacon has the huge potential to become part of a mobile payment system for smartphones, partly because of is integration of BLE. Bluetooth Low Energy's advantage is that it uses technology that can be found in the earliest versions of smartphones. In short, if you have a smartphone with Bluetooth, your phone can theoretically use BLE.

But it's not just that BLE is ubiquitous, it also has technical advantages over NFC, one of the most notable being that it can send a signal up to 150ft, while NFC works best sending signals to devices just a few inches away. This opens up many more mobile payment possibilities. Imagine allowing your phone to automatically pay for a product as you walk out of the store, without having to check out. iBeacon, using BLE, could make that happen.

Apple is rumored to be working on a mobile payments system that would tie directly into the 575 million iTunes accounts the company has on file. That means that all of those iPhone users who've ever purchased something through iTunes or the App Store could use the same account to buy consumer goods. Something like this could push NFC into early retirement.

Foolish thoughts
While both Google and Apple have a similar goal of streamlining mobile payments, the two are going about it in different ways. It still seems a bit early to know which technology will prevail, but with the potential for BLE to work on nearly every smartphone right now, it's hard not to see the upside. Even Google has enabled the latest versions of Android to be BLE capable.

iBeacon is already being tested by Major League Baseball and Macy's for location-based information, but a mobile payment system is the next logical step. If Apple launches a mobile payment system using Bluetooth Low Energy it could certainly help turn the tide away from NFC. For either technology to take off, though, it's going take collaboration among retailers, tech companies and consumers to make it work. As Apple already has a dedicated user base, and hundreds of millions of iTunes accounts, it looks like the company is in the best position to bring about a major mobile payment shift.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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