How does NFC payment work?

The burgeoning technology used for tap-and-go payment relies on radio waves and electromagnetic fields

At its most basic, near-field communication, or NFC, is a way to read and send information via radio waves. It’s a finely honed iteration of radio frequency identification (RFID), which has been around for a while, and, for example, allows warehouse workers to take inventory of shipping containers by scanning them, lets automated tollbooths collect EZ-Pass information from moving cars, or, in the fintech world, makes contactless payment cards and digital wallets possible. RFID works by way of a reader (such as a payment terminal), a specially designed tag (such as that on an enabled credit card), and an antenna that sends signals between the two. The tag contains information, which the reader then recognizes.

This works through the principle of inductive coupling and allows the tag to create an electromagnetic field and emit radio waves. When the RFID tag detects the reader’s own magnetic field, its antenna, which is a coiled wire, begins to emit waves, too. The reader then detects and registers the new magnetic field coming from the tag, and is able to decode and translate the waves into information for the user.

RFID itself isn't used for fintech because it isn’t secure enough, and that's why NFC was developed to operate at a much shorter range. NFC works the same way as RFID but readers and tags must usually be within a few centimeters of each other for information to be properly transmitted. (RFID, on the other hand, can operate with a range of up to 100 meters.) As a result, NFC interactions—and NFC payments—work in a way that is considered largely secure, because they cannot be easily interfered with. For instance, an NFC-enabled smartphone must be held quite close to a contactless payment reader in order for NFC payment to work, so there’s no danger of the user’s phone being scanned from halfway across the store. NFC data can be transmitted at a frequency of 13.56 megaHertz, with the potential to send data at 106, 212, or 424 kilobits per second, depending on what kind of information is being sent.


There are currently three different types of NFC communication: reader, peer-to-peer, and card emulation, all of which rely on a reader and a tag.

Reader NFC communication

Reader NFC is a passive communication, in which information can be transmitted without the use of a power source. In other words, only the reading device itself uses power, so the tag can be as simple as a sticker placed on a poster or other inanimate object. Holding up an NFC-enabled device, such as a smartphone, to the item activates the NFC, and the information pops up immediately. NFC tags can therefore be used to easily provide information in public areas or enhance menus, programs, and other written materials. NFC tags used in this way are sometimes compared to QR codes, but that’s not quite right; in contrast to QR codes, no specific app is needed to retrieve the information. NFC powers common things like key cards or fobs, dog microchips, , and some public transportation cards. NFC payment works via reader NFC as well through tap-and-go payment cards.

Peer-to-peer NFC communication

Peer-to-peer interactions, on the other hand, require both devices to be active, so, for example, two NFC-enabled smartphones. Information such as photos, documents, contacts, and videos can be transferred from one phone to the other by simply tapping them together without opening a specific app or having to even select a “send to” option. To that end, there’s potential for NFC payments to work by sending money to another user with the tap of a phone—something that Samsung is currently working to develop.

While peer-to-peer NFC certainly has a lot of potential, it hasn’t quite caught on yet—but that might just be because not all phones have NFC capabilities. Phone companies are working on it, though: In 2013, the number of NFC-enabled smartphones grew 128 percent over the previous year, and by next year, that number is expected to have grown another 325 percent, with 75 percent of smartphones equipped with the technology. Still, being equipped with NFC is one thing, and using it is another: In 2015, only 5 percent of smartphone users who had NFC used it at least once a month.

Card emulation

Card emulation is perhaps best known in the payments landscape as the technology that powers Apple Pay and Android Pay, among others. NFC payment works in digital wallets through NFC-enabled smartphones that incorporate credit and debit card accounts, loyalty cards, and other financial details into the information transmitted by the phone’s NFC tag. NFC payment works when users pay with their smartphones in lieu of credit cards simply by waving their phone in front of a terminal. It doesn’t require opening an app, entering a PIN or providing a signature, or entering any additional information; it’s quite a convenient way to pay, although it hasn’t been widely adopted, with only 3.5 percent of eligible transactions made via Apple Pay as of March 2016.

One concern with card emulation is security. Sensitive information can be secured in digital wallets in two ways: Host Card Emulation (HCE), which is cloud-based, and Secure Element (SE), which is device-based. Android and Google use HCE—the device uses a virtual credit card number, which the mobile payment provider’s servers verify, and then send the user’s real credit card number to the merchant to complete the transaction. SE, on the other hand, operates a bit like an EMV chip card, by using tokenization embedded in the device itself. This means that a user’s credit card number is never stored on the phone. But despite these security measures, emulation still makes people nervous. On the one hand, if the cloud-based HCE gets hacked, there’s a danger of credit cards numbers being exposed. On the other hand, when the security is contained on the device itself, losing one’s phone becomes more dangerous than ever. Fears of losing one’s phone or having it hacked are the single biggest reason people don’t use digital wallets.

The future of NFC

Though it has drawn some comparisons to Bluetooth—and particularly to Bluetooth Low Energy (BLE), which powers new technologies like iBeacon—the two technologies can and should find space to coexist. While they operate in a similar way, Bluetooth requires a manual connection to be set up between two devices (which NFC does not) and operates over a longer range, up to 30 feet. NFC’s ease of use in comparison and its much smaller range requirements make it particularly useful for payments or other sensitive transactions that rely on higher security and a lower likelihood of interception. Moreover, NFC uses less power (even than BLE) and makes peer-to-peer exchanges easier. Bluetooth, on the other hand, is faster. Because each method has distinct advantages, neither technology is poised to make the other obsolete. Rather, there’s a movement toward compromise where users may end up pairing their devices with NFC and then use Bluetooth to make the transfer.

As the number of smartphone users who have NFC continues to grow, so do the potential applications of the technology. Digital wallets may certainly see a lasting foothold, along with peer-to-peer NFC payments made with a simple tap of the phone. But one thing’s for certain: As ease of use and convenience continue to be consumer priorities, NFC is a technology that can find many niches to fill.

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