Application Of Nfc In Mobile Payment

Published Date: 02 Nov 2017

Abstract

The main objective of this paper is to study different ways in which Near Field Communication(NFC) can be used on smart phones. This paper also touches on how NFC is different from other existing communication technologies such as Bluetooth and RFID. It attempts to highlight the importance of Near field Communication in mobile payments ,its advantages and disadvantages. The various aspects of security with respect of NFC are also discussed.

1. Introduction

Near field communication (NFC) is a wireless technology. This technology has already been adopted in few countries and is gaining popularity in North America recently. It is a short range communication. NFC users can exchange data, initiate connections with other devices and act as a secure smart key access to services such as cashless payments, online entertainment, ticketing and access control. NFC devices can transmit and receive data at the same time. Near Field Communication can therefore be used to in place of key cards and Visa/Mastercards. At the same time, a small NFC reader embedded in the phone opens up for many new applications. Sharing phone numbers with people can be done in a quick manner by simply placing the two mobile phones near to each other. Bluetooth connections can be set up without any manual configuration. When this new technology is adopted by consumers and companies, the cell phone could be the only device needed when a person leaves the house.

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Figure 1: Near Field Communication

2. Methodology

2.1 How NFC works?

NFC makes use of electromagnetic fields induction for data transfer. It is a combination of an interface of a smartcard and an external reader. It enables exchange of data when the distance between devices is less than 10 cm. NFC builds upon Radio-Frequency Identification (RFID) and contactless smart card technologies. NFC operates in the frequency range of 13.56 MHz and has a data transfer rate of 106 Kbps,212 Kbps, and 424 Kbps. The main advantage of NFC when compared to other wireless communication technologies is its simplicity. Transactions can be initialized automatically, simply by touching a reader with another NFC device. Every NFC enabled devices must have either a reader or tag. A tag has an external antenna connected to it. It is a passive source as it does not have a power source and absorbs energy from phone. When sufficient energy is acquired it sends data.

Figure 2: Magnetic Filed Induction

The initiator which has an inbuilt antenna sets up current that is picked up by the nearby tag. The smart tag receives the induced current from the cell phone, recognizes it as a valid signal and offers a connection to the cell phone. The reader accepts the connection and begins the transaction.

2.2 Modes of operation

NFC devices can operate in three different modes based on usage.

Card Emulation mode: This mode has an external reader and the NFC device works as a smart card. A rail pass or ticket when placed in front of the reader act as a contactless credit card.

Reader Emulation mode: This mode is used when a NFC device reads data from tags. This mode is one way communication because the NFC tag can send the data to NFC device but cannot receive it. A smart poster is a good example of reader emulation mode.

Figure 3: Modes of NFC communication

Peer-to-Peer mode: This mode is used when communication takes place between two NFC enabled devices. It is used for exchange of business cards and to pair Bluetooth headset with mobile phones.

3. NFC standards

The NFC Forum is a non-profit organization, which supports and directs the use of technology in the industry by providing a platform for companies to achieve interoperability of devices with other devices, smart cards, and services. The NFC Forum makes compulsory strict standards for manufacturers for designing NFC compatible devices, which offers a secure architecture and compatible framework for application vendors to bind this technology for mobile payment capabilities and data sharing i.e. peer-to-peer money exchange.

4. NFC compared with existing technologies

NFC is a better technology as compared with Bluetooth and RFID. It requires less setup time and less power. The below table shows a comparison of Near field communication with existing technologies.

NFC

RFID

Bluetooth

Range

Short range(0-10 cm)

Up to 3mt

Up to 50cm

Setup time

Less than 0.1 msec

Less than 0.1 msec

About 6 sec

Usage

Touch and wave

Retrieve information

Configuration needed

Table 1. NFC compared with RFID and Bluetooth

5. Applications of NFC

NFC can used in wide variety of applications like automation, logistics, identification, physical access, and payments. Its popularity is increasing because of its fast and simple connection process. We have listed below some of the applications of NFC enabled devices across industries.

Transportation

Using NFC users can pay the bus, metro or tram with a tap of the phone. The system will also help the passenger know the accurate time and distance of journey. Thus, a quick automatic fare collection system can be implemented with low cost and high efficiency.

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Figure 4. NFC in Ticketing

Payments

The payments can be made using online or offline system. In an online system a serial number is stored in the secure chip inside the smart phone which is linked to a central database. This chip maintains the user’s account balance or his credit limit. In an offline system, the chip is pre-filled and other required values are stored in the chip memory. The user would be asked to authenticate themselves through the user interface of the mobile phone in case of transactions crossing a preset threshold. Hence, the transactions are secure and simple.

Smart Poster

NFC smart posters provide a new means of market to the manufacturers. A smart poster has embedded tag .Users can download information about services , objects or places.

Share Data

Two NFC enabled devices can share business cards, photos, messages between them. Users can connect electronic devices such as Bluetooth headset in home, office with NFC enabled mobile.

Figure 5. Share data between two devices

Secure Smart Key

A smart phone with NFC can do lot more than a car key. Users can store the vehicle’s data such as mileage, car history etc. Using GPS coordinates, a user will get the location of his vehicle.

6. NFC Mobile Payment

The electronic payment industry has evolved progressively over the past decade. It has made credit card and then online banking a safe and secure purchasing method for consumers. This has paved the way for the introduction of mobile payments using NFC.

6. 1. What led to mobile payments?

Mobile payment is rapidly becoming an alternative way to make payments. Instead of paying with cash, check or credit cards, a consumer can use a mobile phone to pay for a wide range of services or goods. There are many different schemes emerging for banked and unbanked consumers using technologies such as NFC. NFC is especially useful for in-store small payments where saving time is important in outlets such as fast food stores. The factors which led to introduction of mobile payments are given below.

6.1.1. Contactless payment adoption by payment authorities and consumers

Visa, discover network, American express and master card have issued contactless payment cards and devices which follow a single standard. These contactless payment cards have been beneficial to both merchants and consumers. Now, consumers enjoy increased speed and secure transaction.

6.1.2. Contactless payment acceptance by merchants

The benefits of higher rate in transaction time, an increase in the spending nature of customers and their increased loyalty and transactions using contactless cards and devices helped merchants realize the benefits of contactless payment.

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Figure 6. Mobile payment

6.1.3. Mobile phone ubiquity

Today, mobile phone has become an inevitable part of our lives. Near filed communication will soon be adopted as standard functionality in mobiles. This can facilitate an efficient and effective implementation of contactless payments using the mobile device. An NFC chip embedded in a mobile phone can act as a card or a reader. This enables devices to connect, receive and share information. Users can also make secure payments quickly.

6.1.4. Expanded mobile functionality.

Mobile manufactures are trying to introduce desktop features to mobile devices. Highly sophisticated hardware processors are used in manufacturing of mobile phones. Introducing new apps such as google wallet enabled customers to use mobile payments in their daily lives.

6. 2. Types of mobile payments

There are two kinds of mobile payments which are listed below:

6.2.1. Remote mobile payments

Remote mobile payments are suitable for use in markets that require a person for payments. Generally, consumers and merchants who are not part of the normal POS acquirer payment process such as market vendors also need remote mobile payment system.

6.2.2. Proximity mobile payments

An NFC-enabled phone is provided with a payment application (i.e., credit or debit card) which is issued by the consumer’s bank. The payment information are encrypted and loaded into the application of the mobile. Using the built-in NFC technology, the phone can communicate with the merchant’s contactless payment-capable point of service. The payment process is similar to the traditional credit or debit payment card.

6. 3. Factors Affecting the Emergence of Mobile Payments

Today, consumers are adopting wireless data services rapidly. They have already started to use mobile phones for transit and retail payments in Asia. In both Japan and South Korea, proximity mobile payment has been implemented. In North America, the financial industry is using new programs in which contactless payment devices can be linked to mobile phones. Next, mobile hardware is becoming less expensive, faster, and easier to use while incorporating more functions. Finally, merchants, banks, and service providers understand that mobile or contactless payment initiatives will improve their business and market.

6. 4. How it works

The working of devices using this technology is being explained by considering a case of NFC-enabled Android phone. Consumers who have an NFC-enabled Android phone launch the Google Wallet app. They can associate Citibank MasterCard cards for now or load up their Google prepaid card with funds from other accounts. Users may enter in loyalty card information for merchants and retailers. The app will also work with Google Offers, Google’s daily deal service, so users can load the offers on to their phone. They can also transfer discounts offered through Google Shopper online and also by tapping NFC-enabled chips embedded on retailer posters. In the future, the app can store boarding passes, tickets, IDs and keys.

When checking-out for a transaction, users unlock their wallet and tap their phone on a paypass terminal to pay. With a single tap, a user can also present their loyalty card and also redeem coupons at the same time.

http://www.blogcdn.com/www.engadget.com/media/2011/05/google-wallet-05-26-2011.jpg

Figure 7. Users paying through Google Wallet

6.5 Current payment system using credit card

The figure below shows the process flow of transaction using a traditional credit card. As the credit card transaction become successful, funds get transferred and deposited from the customer’s bank to the merchant’s bank. There is a charge called interchange fee, which is shared among banks and credit card companies as cost of transaction.

The authentication process in traditional payment system:

Customer makes a purchase

Merchant’s terminal sends a request

Merchant’s banks forwards it to payment processing company

Payment processing company forwards it to customer’s bank

Customer’s bank, payment processing company and, merchant’s bank are notified whether funds are approved or not

Merchant ‘s terminal sends a message status to the customer

Figure 8. Basic authentication Process

Basic Payment process :

Merchant sends settlement request

Merchant’s bank sends settlement request

Payment processing company forwards request

Customer’s bank transfers funds

Figure 9. Basic Payment Process

6.6 NFC based Payment system

An NFC-enabled phone behaves just like a credit card. Mobile payments are made with the help of a secure element in the smart phone that stores the user’s confidential data. The POS terminal is equipped with an NFC chip reader. When the NFC-enabled phone touches or comes close to the contactless terminal, the terminal gets the essential personal identification and account information from the phone, just like in the case of the magnetic stripe of a credit or debit card. The mobile device may have several payment accounts – credit or debit or merchant specific "stored value account" or gift card and the owner can choose one from them for the transaction.

Basic authentication process:

Customer makes a purchase using NFC mobile

Merchant’s terminal sends a request

Merchant’s banks forwards it to payment processing company

Payment processing company forwards it to customer’s bank

The payment processing company and customer’s bank interact with trusted service manager and OTA

Over The Air (OTA) is a standard for the transmission and reception of application related information in a wireless communications system

Customer’s bank, payment processing company and, merchant’s bank are notified whether funds are approved or not

Merchant ‘s terminal sends a message status to the customer

Figure 10. Authorization process using NFC

Basic Payment process :

Merchant sends settlement request

Merchant’s bank sends settlement request

Payment processing company forwards request

The payment processing company and customer’s bank interact with trusted service manager and OTA

Customer’s bank transfers funds

Figure 11. NFC basicpayment system

6.6 Implementation of secure Element selection to improve security in mobile payment

Mobile operators, in conjunction with financial institutions, will play a joint role in the selection of the element to be used as the secure element in the phone.

There are three primary options being discussed for placement of the secure element in an NFC enabled handset which are listed below:

6. 6. 1. Secure Element Embedded in the Handset

The secure element can be a secure microcontroller embedded in the handset. This is the architecture that has been most widely tested in mobile payments field trials around the world. The advantage of this approach is that the secure elements that can be embedded today have all the necessary banking hardware and software certifications.

6. 6. 2. Memory Card as the Secure Element

With this solution, an external memory card (e.g., a miniSD card) hosts a secure chip with a microcontroller and flash memory. This solution could allow any party to provide "memory" cards with their applications.

6. 6. 3. SIM Card as the Secure Element

With this architecture, the SIM card hosts the payment applications as well as other NFC applications. The applications can be stored in the SIM component itself or as an additional component in the SIM plug.

Figure 12. NFC Secure Element option

7. NFC compatible devices

Currently, there are several NFC compatible smartphones such as Google’s Nexus S, Samsung’s Galaxy S II, and the BlackBerry Bold 9900 & 9930. Several companies are currently onboard in leveraging this technology:

Google Wallet – a secure container for credit card information and facilitating NFC transactions

MasterCard PayPass – a contactless payment service (currently supported on the Google Wallet)

Visa payWave – a contactless payment service

PayPal – a "bump" method to transfer money or make payments between users

iPhone – iPhone 5G has NFC support.

8. Advantage of NFC in mobile payment / who profits with NFC payment most.

Mobile phone carriers, credit card companies, and third-party sluggers, like Google and PayPal, all gain--either through selling hardware, or through transaction fees and revenue-sharing. Customers like easy and fast technologies. NFC provides easiness and fast.

8. 1. Opportunities for Consumers

Proximity mobile payment can offer consumers increased convenience, savings, and personalized assistance with their shopping and payment needs. Moreover, a wide range of additional applications can be enabled using contactless technology:

Paper receipts can be made obsolete. Instead, payment transaction records can be accessible on a consumer’s mobile phone.

Consumers can manage their entire debit, credit, prepaid, gift card, and loyalty card portfolios using their mobile phones.

Consumers can use their mobile phones for entry through access control points such as the entries to fitness or other members-only clubs.

Consumers can also receive instant and specialized offers based on their shopping patterns and enjoy benefits provided by retailers and financial institutions based on their profiles and lifestyle choices.

8. 2. User Friendliness

A technology that their customers and employees can use intuitively is welcomed by merchants. In addition, merchants do not want to supplement their employee training needs. With the current rollout of contactless payments, clerks are learning how to accept payments using contactless technology. This knowledge is expected to carry over to mobile payments. In addition, U.S. customers are becoming increasingly used to using their mobile phones for more than just making phone calls.

8. 3. Faster Transaction Times

In order to shorten the payment processes, both merchants and customers like to have faster transaction times. Faster transaction time is an important factor in order to meet their customer throughput needs for some merchants.

8. 4. Increased Revenue

Increased revenue is critical to a merchant’s growth. Multiple variables have an effect on a merchant’s revenue stream. A technology that helps them build customer loyalty is valued much by merchants.

8. 5. Reduced Expenses

Proximity mobile payments can affect the expenses in number of ways:

Cost of deployment.

Cost of downtime.

Cash handling expenses.

Operational expenses.

8. 6. Minimal Infrastructure Changes

Merchants do not like to make infrastructure changes to their physical POS systems. If changes are required, merchants need them to be easy, involving minimal downtime. Implementing mobile payment at the POS is a multi-faceted process, requiring the deployment of contactless technology to merchants, periodic training of sales clerks, and education of consumers. Merchants can enable their stores to accept contactless or NFC-enabled phone payments using readily available and standardized software. Adding a contactless reader/writer or a contactless-enabled terminal to the existing POS system and making minor software changes are cost effective to enable acceptance of proximity mobile payments.

8.7. Significant economic benefits for Mobile operators

Mobile operators could see significant economic benefits from offering mobile payments. Potential benefits include new customers, reduced customer churn, and revenues from new, payment-related data services.

8. 8. Proximity mobile payments allow financial service providers to offer new, differentiated payment services to their customers, increase their credit and debit card transaction volumes, and extend their brands.

8.9. Opportunities for Applications Developers. Because a single phone can store several cards, the phone will require an e-wallet and should allow customers to select the correct card easily and accurately.

8. 10. Dependability

Dependability is a main concern for merchants. Since proximity mobile payment does not require merchants to replace the existing payment infrastructure, merchants and customers can still use traditional magnetic stripe or contactless cards if necessary.

8. 11. Cost effective

Merchants can enable their stores to accept contactless or NFC-enabled phone payments using readily available and standardized software. Adding a contactless reader/writer or a contactless-enabled terminal to the existing POS system and making minor software changes are cost effective to enable acceptance of proximity mobile payments.

8. 12. Mobile operators can:

Attract new customers.

Add revenues from data services related to payment.

Encourage consumers to upgrade to more feature-rich NFC-enabled mobile phones.

Reduce customer turnover by offering new value-added services.

8. 13. Financial services providers can:

Increase credit and debit card transaction volume from replacing cash sales.

Reach new customers and offer new, differentiated payment services to existing customers.

8. 14. Merchants can:

Speed transactions for customers using mobile handsets.

Increase the number of customers making contactless payment transactions.

Improve customer convenience and loyalty.

9. Disadvantage

But for customers there are many risks including security risks. An eminent person in the market asked a question "What advantage does using an NFC provide instead of using credit cards. Using NFC enabled phone customers tap the phone against NFC reader. Whereas they swipe with credit/debit cards for making a payment"

Consumers are more sensitive to security and privacy issues. However, if consumers perceive that mobile payment possibly involves loss of privacy, they will not accept it.

According to a survey, 73% of people said security was the most important factor in making mobile payments, with 12.4% saying simplicity and 8.5% speed.

There are several attack scenarios to consider when sensitive information such as credit card or account number data is being transmitted through an NFC channel. Even though the range for NFC communication is less than 20 cm, the potential risk it has regarding security is of importance.

They are

Eavesdropping – attempting to intercept the NFC transmission data communication (e.g. NFC proxy)

Interception Attacks – attempting to take advantage of active-passive modes of the device to send/receive NFC transmission data communication

Data manipulation – attempting to manipulate the NFC transmission data communication (e.g. to determine erroneous outcomes)

Theft – attempting to gain unauthorized access to the mobile payment application (as if the device was stolen or lost) and reviewing the file storage on the device for sensitive information

Embracing such mobile technology and developing applications for storing credit card information and facilitating NFC payments also brings with it risks and concerns around privacy, theft and regulatory compliance.

11. NFC for mobile payment in markets

Figure 6. Contactless acceptance at US merchants

11. 1. Atos Worldline launches NFC Mobile Wallet

September 2012 - Atos Worldline, Atos core expertise in Hi-Tech Transactional Services, launched a ready-to-go, Visa and MasterCard compliant NFC (Near Field Communication) mobile payment application for card issuers worldwide. The end-user is able to pay at a contactless payment location, simply by waving his mobile phone against the payment terminal, and keying his PIN code directly on his phone. The new wallet will enable multiple, distinguishing value-added services such as cloud payment and NFC transactional services.

11.2. Orange and China Mobile sign NFC development deal

December 2012 – A SIM-based NFC standards are promised by many mobile network operators including China.

11. 3. Telefónica O2 begins mobile payments rollout in Germany with mPass contactless stickers

October 2012 - mPass uses SMS notifications to allow customers to make online purchases with their mobile phone, without sharing their bank or card details with the merchant. Customers have two options for settling up the purchases they make. They can use their mPass account as a stored value card and top it up with funds from their bank account as required, or they can choose to have each payment debited directly from their bank account on an individual basis.

11. 4. Everything Everywhere

August 2012 - Everything Everywhere, owner of the Orange and T-Mobile brands in the UK, a five year partnership deal with MasterCard, to develop mobile and digital payment solutions for Everything Everywhere's 27 million UK customers.

11. 5. Vodafone and Visa

February 2012 - Vodafone and Visa have announced a worldwide partnership which will enable the carrier's subscribers will be able to pay for goods and services using their mobile phones

7. Conclusion

Implementing NFC technology for mobile payment has advantages as well as disadvantages. Even though this technology promises benefits to stakeholders that are involved in establishing, it doesn’t provide much advantage to the end-user. Its security flaws diminish its benefits.

But the study clearly says that this technology will be an inevitable part for mankind in the coming days. All the markets are ready to embrace this technology without thinking about the disadvantage or hidden risk this technology could bring in the near future.

8. Acknowledgement

Handouts of Prof. Dan Xiao were referred to do this reserch. I would like to thank Prof. Dan Xiao for extending his helping hand.