Contactless Payment Systems And Nfc Solutions Information Technology Essay

The contactless payment is gaining momentum. Consumers have strong preference for such technology and vendors prefer this technology to reduce wait times to satisfy customers. As the use of mobile phone now goes wherever we go therefore it is time to get some more benefits and functionality from its use. With the contactless payment system such as Near Field Communication (NFC), a range of innovative services are possible. We can say that a wholly new way of communication with mobile is just around the corner. The paper discusses operation of NFC, how secure is this technology and some future directions.

Introduction

To explain the differences with the previous research, we describe the methodology used for the assessment of NFC. Contactless communication promises significant increase in economic productivity and personal convenience. But unlike many new applications which need only an enterprising firm to develop it, the widespread deployment and adoption of mobile payments systems needs action from a complex ecosystem of organizations (e.g., mobile phone service providers, banks, retailers and others) to build a mobile payments system. Because of this, only a few nations, notably Japan and South Korea, have been able to coordinate the complex ecosystem required to extensively deploy a widely used mobile payments system.

Contactless payments leverage near field communication (NFC) technology, a specific standard of radio-frequency identification (RFID) technology, which enables secure wireless data transfer over short ranges between electronic devices. In combination with an embedded electronic wallet on a mobile phone or smart card, NFC makes possible a wide range of transformative monetary and non-monetary transactions. Further, we expose the results obtained. Finally, we provide a discussion and conclusions.

History of Contactless Payment & NFC:

Commercial service using the FeliCa contactless technology – similar to NFC – was started in Japan in July 2004 by NTT DoCoMo. In association with more than 28 service providers which includes airlines and railway companies, finance houses, food machines, departmental stores, etc., at that time two applications were proposed, electronic wallet and contactless payment system. Industry was encouraged to use the contactless technology using mobiles. France Telecom on 18th October builds their telecom around this contactless system. 200 Orange subscribers in this city who also held the Cofinoga credit card and VINCI Park car park users, tested new uses with a Samsung D500 terminal having Philips Semiconductors NFC chips. This telephone enables them to pay in complete security for items in certain stores. This technology was also usable when opening the car park barriers. This chip was also usable in case of any information needed such as a film trailer or tourist information. To encourage this technology Sony, Philips and Nokia build a forum in 2004. One major goal of this forum was to establish NFC standards and provide a central platform for discussion. This body trained 47 service providers including France Telecom.

Contactless Payment Technology:

Innovations in payment systems, at various Point of Sale (POS) such as chip and PIN and the adoption of wireless technology have revolutionised the way consumers pay. Millions of consumers are also aware of these contactless payment solutions such as London’s Oyster card. Now an increasing number of payment devices are replaced with such technology at gas stations, convenience stores and quick service restaurants (QSRs).

Various contactless payment systems such as RFID and smart cards are used interchangeably resulting in confusion between these terms. RFID is a wireless automatic identification and data capture (AIDC) technology. It includes tags, Antenna or coil Electronics programmed with unique information, reader and software. The Integrated circuits group comprises of IC. RFID transgender will be detected by the reader from a greater distance (Parul and Michelle). The contactless technology imposes a great deal of security for various applications as shown in the following diagram (Parul and Michelle).

Parul Oswal, Michelle Foong, 2006 RFID Vs Contactless Smart cards – An unending debate, Frost & Sullivan, Asia Pacific

Contactless Technologies & Features:

Following table shows some of the features of contactless technologies and their features and comparison of these technologies to better understand their implications:

Contactless smart cards operate on frequency of 13.56 MHz, with high memory capacity. The higher security capabilities and memory capacity of smart cards renders them suitable for applications such as e-passports, payment cards, and identification. The preferred option to choose for various applications for these cards is based on their capacity and security. Both these features should be provided by the card to store personal or transactional information along with its secure transfer of information over the media (Klaus Finkenzeller 2003). There are three elements of an RFC enabled mobile: RF IC, Secure IC / SIM card, and antenna. This device can then operate in several modes. International symbol for contactless payment is shown below:

NFC System:

Near-field communication (NFC) is a short-range wireless connectivity technology that combines radio frequency identification (RFID) and interconnection technologies (NFC Conference) NFC is promoted by the NFC-forum. It takes the RFID ISO 14443 proximity-card standard by interacting a smartcard and a reader into a single device. Thus it is also compatible with existing RFID adapters, such as the contactless card architecture which is already being use for payment and transportation. NFC operates in the 13.56Mhz spectrum and can transfer up to 424 kbits/second. Data can be transmitted between reader and tag. When both devices are in range of each other the electrical signal current is sent into the magnetic radiation field pattern forming an air-core transformer. When the reader sends the data by using amplitude modification, load modulation is used in the opposite direction, from which the reader unit converts the received signals into a data stream (NFC ECMA Conference 2002). By implementing the contactless technology the cost of transaction will come to a drastically low level. Although contactless card payments represent the most immediate opportunity, there are a variety of ways that contactless payments can be processed. A wireless technology called Near Field Communication (NFC) is set to be integrated into mobile devices such as phones, PDAs, cameras and music players. Currently this technology is rolling at 13.56 MHz across distances of up to 20 cm, and is designed to be easy and intuitive to use. To illustrate the potential, Visa Europe has demonstrated a contactless payment solution using a mobile phone. This project enabled the creation of payment solutions via mobile phones using Visa payWave. MasterCard’s survey has suggested that the transactions will become fewer frequent in the future. In a survey by Master-Card, 38% of people thought they would use cash less in five years’ time, while 16% said they often did not make everyday purchases such as newspapers, sweets or cigarettes because they did not have change or didn’t want to pay with a note (Mastercard Worldwide 2009). Currently 51 million merchants are on this technology worldwide, according to Mastercard Association. MasterCard has explained about the ‘wave and pay’ or ‘tap and go’ cashless and contactless cards are a method of paying for everyday items, such as coffee or newspapers, simply by swiping a credit or debit card across a reader. Contactless payments are expected to revolutionize the way low-value purchases are made.

RFID system:

Radio Frequency Identification (RFID) technology was invented in 1948 and undergone various development stages (AIM, Inc 2001). In 1950 it was confined to only laboratory experiments. Commercially it started in 1980 but in 1990 it was accepted widely. Currently in most of the production scenarios it is used to track items. It is used in consumer applications. RFID is used to pay automatically for public transport and tolls without waiting for tellers (A.R. Peslak 2003). Some of the applications are T-Money in South Korea, EZ-Link card in Singapore, Touch n Go Card in Malaysia, Octopus Card in Hong Kong, Oyster in London, Easy Card in Taiwan, EZ tag in North Texas and Houston, FasTrak in California, Pikepass in Oklahoma and SunPass in Florida. RFID is also used to control the vehicles stated by R.Wantt (2004) in major companies such as Toyota, Lexus and various production industries. Privacy and the perception of privacy in real applications are central concerns for introducing RFID in retail.

Most contactless smartcard applications are based on the ISO/IEC 14443 standard (ISO/IEC Standards). This standard specifies the RF signal interface, initialization, anti-collision and protocols for wireless interconnection of closely coupled devices. It operates at 13.56MHz, with a bit-rate of 106Kbps, and is designed for a range of 10cm.

 EMV (EuroPay, Master and Visa)

The introduction of EMV technology across Europe brings added security to traditional card transactions and it has enabled the payments industry to a newer level of connectivity.

As a low cash transaction option, the EMV system is the best at this time as suggested by Visa International Service Association. In the UK, it is estimated that consumers make 27 billion cash transactions a year, worth a total of £250 billion (Visa International Service Association). However, over 80 percent are for purchases of less than £10.00. Retailers and consumers have traditionally resisted using payment cards for low value transactions. Some consumers think that the cards are slower than cash, but facility that it is offering a point of consideration for the same consumers. Visa believes that the combination of the EMV standards and wireless technologies offers just such a solution. EMV is the global payment standard for chip cards – providing banks, vendors and merchants with a single, interoperable set of specifications for chip-enabled payment cards and acceptance devices. Across Europe, more than 4,600 European banks are in the process of issuing a quarter of a billion Visa EMV chip cards and upgrading millions of card acceptance devices (Visa Europe Association).

Since Europe is leading the EMV, however the trend is truly international. EMV has truly outnumbered the traditional magnetic chips on various places. These EMV specifications have given consumers greater control over the type of transactions they can put in context. These technologies have given consumer control over various security feature which they can configure by themselves such as sending request for PIN change or they can do this by themselves online. This means that the consumers have total control over the transactions that they perform. They can put a minimum transaction limit over these cards and decline any transaction which increased from a certain amount. It also means that these lower risk low value transactions can be processed more cost-effectively than higher-value transactions. EMV chip technology could potentially address many barriers that have traditionally prevented payment cards from being used for lower value transactions. By going one-step further – and combining EMV standards/concepts with today’s wireless technologies – Visa offers entirely viable cash replacement solution.

This solution uses a standard Visa Smart Debit and Credit (VSDC) application on a dual interface EMV chip card (a chip that enables both contact and contactless payments) (Visa Europe 2009) Using the existing ISO 14443 Radio Frequency specification, the card communicates with a Point of Sale terminal connected to a ‘plug-in’, contactless reader. Faster and more secure than cash, the solution can optimally play better for busy sectors such as fast food, convenience stores and public transportation – which process large numbers of low value transactions. The solution allows the card issuer to maintain a high degree of control over the way that transactions are processed. For example, the issuer could personalize a card to enable ‘wave and pay’ offline transactions where each transaction amount is below a threshold of about £10 in the UK (€20), and the total of these offline transactions does not exceed for example £50 (€70) (Visa Europe) Once this limit is reached, the card will only operate in contact chip and PIN mode, at which point the issuer can authenticate the cardholder and reset the contactless counters. This means that if a card is lost or stolen or the cardholder exceeds their personal pre-authorized offline limit, the card issuer’s financial exposure is kept to an acceptable level.

 Key features of contactless NFC technology:

Thanks to NFC technology, many new services could appear around the mobile phone to simplify our daily life. Compared to other short-range technologies such as Zigbee and Bluetooth, NFC has a shorter of < 0.1 ms and range for enhanced security (up to 10cm). Bluetooth for example requires configuration parameters to be set before it can be used and this process takes almost 6 seconds. It is also not mandatory to have line of site, as it is for IrDa infrared technology. Its properties make NFC suitable for fast transactions and safe for crowded areas. NFC is standardised in comparison with smartcard devices as follows:

NFC mobile phone acts as an access device to enter the stadium and make payments for any purchase inside the stadium area. The results reported seem to be quite encouraging for further developments of NFC (Y. AU & Kaufman). In a research it is compared that different technologies and alternatives for mobile payments in the Swiss market. These earlier studies (Ondrus & Pegneur) have shown that card-based systems are still performing quite well in the current market.

This research paper is to assess and evaluate the potential of NFC compared to other existing mobile payment technologies. In order for a rigorous research we’ll evaluate against some of the existing applications and compare them. The research presented in this paper is an extension of a previous research carried in the similar technologies. Comparing the existing payment technologies there are several differences in terms of the selected operational mode (Ondrus & Pegneur). However, the theoretical background used is identical. The previous related work on mobile payment and technology is undertaken.

NFC and Mobile Payment in m-commerce:

Currently supermarkets are shifting to easy and quick checkout process for customers for which consideration of new and improved technology is no doubt the first line of action. 95% of the retailers consider waiting lines at their checkouts as the most daunting problem to solve for the customers (Chu,J & Morrison). Various research shows that due to large number of products that the average customer buys in a supermarket when compared to other stores and owing to the requirement to have each of these products scanned by a cashier, the checkout process time is larger than normal. Here NFC provides a new and improved infrastructure for customers. A typical scenario for Mobile Payments is shown in the diagram:

A typical scenario where a user will ultimately get benefit from NFC will be discussed to understand the importance of this card free environment. The emergence of m-commerce depends largely on the success and implementation of this system and collaboration between customer, retailers and third party vendors who are providing these services. It is a complete cycle which enables such paper free and virtual environment to enable retailer with increased efficiency.

NFC has been tested and has potential for the mass-adoption in almost all segments of m-payments such as m-ticketing, m-banking, m-commerce and m-trade. While the m-payments are projected to reach the critical mass, NFC for its compatibility with the existing infrastructure is well placed to enhance the already available m-payment technologies for its robust future growth. 2007 to 2010 have seen many developments on the NFC technology. Customers, Banks and NFC device manufacturers have been previously working in the same infrastructure, just the media has changed and improved in due course. Following is a simple cycle which has enabled complete payment process to banks through Mobile Payment:

According to Jonathan Collins mobile handsets remain the key market for NFC but increasingly the potential of the technology is driving NFC into other devices and form factors. NFC to handsets with microSD slots is helping to change the mobile handset landscape for many NFC vendors and supporters. According to a survey the total production of NFC chips and devices will raised to a significant level in the years to come.

Contactless Benefits:

There is a significant potential in the market for contactless payment, therefore its benefits are continuously adding into the list day by day. Here are some of the advantages listed:

Customer appreciate the speedy process of contactless payment rather waiting for the response from the card company while using it

With the implementation of contactless payment, financial institutions can increase their number of transactions as more and more people will adopt to use system which is already in the handset.

It uses international standard ISO/IEC 14443 for communication which is being adopted worldwide for implementation at various stages such as supermarkets, transportation and security checks.

This will leverage the payment cards infrastructure which is already there for the last 40 years

The contactless payment cards are backed by various brands such as American Express, Discover Network, Master Card and Visa. A couple of years ago there were around 30 million cards issues in USA only for the purpose of wireless communication.

Acceptance of contactless payments is around the world by various retail markets. Over 50,000 merchant locations now accept contactless payment cards and devices.

Adoption of this standard has been there because of customer satisfaction as it is reliable, fast and above all convenient for many users.

Security measures are already in place with the payment cards which has backed this infrastructure by implementing similar encryption of information and increasing the comfort level of customers.

Implementation of NFC using:

In this section ITEA (Information Technology for European Advancement) SmartTouch project which introduces secure payment solutions for NFC. Since a credit card has no batteries, limiting the contactless possibilities, except the mobile where it can take power from mobile enhancing its use. NXP Semiconductor splits the contactless payment system into four abstract categories defined by NXP [online]:

Touch and Go where applications such as micro payment allow consumers to just wave the device over the POS-terminal without having to confirm the transaction

Touch and Confirm, such as mobile payment where the user has to confirm the interaction by entering a password or just accepting the transaction

Touch and Connect, Linking two devices to enable a peer to peer transfer of data or money

Touch and Explore, where devices may offer more than one possible function. The consumer will be able to explore the device’s capabilities to find out which functionalities he wants to use

The payments through the NFC device can be divided into macro and micro payments. Micro payment does not usually require any confirmation, however the macro transaction may require pin to enter depending upon the upper and lower limit set for the account. This gives another abstraction layer for NFC payment solutions. The NFC mobile phone can be compliant with the four categories set by NXP and its keyboard and its screen allow the customer to confirm the transaction by entering a password or just accepting the transaction without any POS interaction. Implementation on the mobile phone the contactless payment capability is possible in two ways:

The dual approach where the SIM is just for the mobile usage to send and receive SMS or MMS and NFC chip will include all the payment application. Both chips are completely separate.

The single chip will hold both type of information. SIM (Subscriber Identity Module) will play part for calling and part for holding secure information of user into a single entity.

The implementation of a pilot project with a single chip was carried out in Strasbourg in France. This is a “Touch and confirm” scenario where the user has to confirm the password for the transaction:

This trial was fully EMV and PayPass compliant. The following figure shows the scenario where NFC-Paypass transaction is shown:

Initially user selects the application from the menu, which lists the on-card applications. He chooses the bank application. When the manual mode is validated, the bank application sends the message to the user:

“Payment Transaction, Please enter your code XXXX”

The user inputs his PIN code, the applet checks it and sends back the message:

“Please move your handset near to the payment device”

The user brings his mobile close to the terminal, the payment transaction is carried out, and a message is displayed on the mobile to inform the user of the correct transaction progress:

“Transaction completed”

This is automatic and default payment mode, however we can opt for the amount confirmation mode as well which will ask the user to check the payment first before making payment. The exact payment will be shown on the screen for ease of user.

Secure Payment with NFC:

The security issues regarding the NFC payments are carried by (5) which were protection against fraud:

Transaction denial

Transaction forgery

Protection of the SIM holder privacy

Conforming to these objectives, the security target should be focused on the following security functions:

Protection of the sensitive data of the application

Overall secure operation of the payment application

Secure operation of the software platform

Hardware resistance against any tamper

The security criteria were defined by Common Criteria Analysis (ISO 15408). Common criteria are a very powerful tool to evaluate the security properties of the IT products. The products of NFC compliant devices follow complete informatics and cryptography. The whole range of state of the art cryptography rules are applied to ensure the fulfilment of any security loopholes. Some issues such as Identify Assets, Identify Threats, Identify Risks and Identify Protections.

Common Criteria specification [onlien] is used to define a PP (Protection profile). This secure environment consists of two chips. Following diagram shows various ISO protocols followed by NFC devices. The above project has followed the following Common criteria:

Future Trends of NFC:

As industry is waiting NFC enabled phone to support their business processes, it is being tested all over the world by many renowned organisations, such as Nokia, Sony, Philips to name just a few. Since NFC chips enable two way communications with other NFC chips to support the downloading of information such as mobile coupons. However the emerging technologies include micro SD chips and integrated contactless-payment antennas that attach to phones’ SIM cards. Future will show whether they will be the driving force of the mobile-payment market and cover the m-commerce.

Will Hernandez describes Nokia’s plan that Nokia Corp.’s decision last week to include an NFC chip in every one of its smart phones starting next year finally could help move the technology from scattered worldwide pilots to a major rollout and widespread consumer adoption. Nokia’s decision to include an NFC chip “might put to rest the notion that banks would have to pay for the hardware,” says Red Gillen, a senior analyst in Celent LLC’s banking group. In another sign the NFC space is about to spring to life, Irvine, Calif.-based chip-manufacturer Broadcom Corp. announced it will be make a $47.5 million offer to purchase NFC chip maker Innovation Research & Technology PLC.

NFC Payment System in Japan & UK:

According to a researcher Red Gillen, major backers of the contactless-mobile payment rollout in Japan, including dominant telco NTT DoCoMo, agreed that they should have emphasized promotions and other reward programs a lot earlier than they did in the past. Japan boasts the largest deployment of contactless mobile phones & NFC devices in the world by far, a rollout that began six years back. More than 60 million phones carrying the NFC like FeliCa chip from Japan’s Sony Corp. are in being rolled out, which can be used for a variety of services, including transit ticketing, airline check-in and building access. But payment has always been the premier application backers have promoted. According to DoCoMo, more than 1.1 million shops now accept a variety of contactless-payment applications that subscribers can download or activate. The figure does not include some of the other options currently in place with the NFC devices. (AFP Resources 2011)

Everything Everywhere, as explained by Andrew Boxall that the company formed by the merger of Orange and T-Mobile, has joined forces with Barclaycard to create their unnamed venture. By launching the service will let you pay for goods at more than 40,000 locations across the country, simply by tapping the phone against a terminal.

Orange provided a few more details on the process, saying that NFC accounts will need to be activated and linked to either a Barclaycard, a Barclays debit card or an Orange credit card before you can transfer funds by mobile via the online service. Initially there will be a limit of 15£, which is not feasible for a weekly or monthly shopping.

Orange is using the service of Gemalto to provide them with NFC SIM cards; but it needs a smart our own phone with the NFC enabled antenna of which the Google Nexus S is the most current. This will change as time goes on – Apple has already being linked, Android 2.3 Gingerbread is ready to support it, and Nokia has indicated all their 2011 smart phones would contain NFC technology too.

Everything Everywhere’s NFC payment service is expected to launch during the summer, with more partners and retailers joining up as we get closer to the 2012 Olympics.

Challenges Faced by NFC:

NFC is considerably different from the classic “widget” industry in which a company need only acquire the supply inputs, manufacture its products, and sell them in the market. For a country to successfully deploy mobile payments it must engage a wide range of actors, including: mobile network operators, handset manufacturers, financial institutions including major banks and credit card issuers, commercial retailers and merchant stores, public transit authorities, government agencies, and, of course, the customer. NFC thus represents a complex ecosystem with many players whose success depends on joint action at the same time by all the players together. All parties have to figure out a way to act collaboratively at the same time, and this is something markets are not very good at, especially International markets.

For consumers to demand cell phones with embedded electronic wallets and thus, critically, for the mobile network operators to require this feature from the handset manufacturers consumers must know that a sufficiently deployed mobile payments infrastructure exists at merchants’ POS terminals, at fare readers in metro subways and buses, in toll booths along highways, at airports, in parking garages, in automated devices like vending machines and parking meters, and in other places where the feature can be used. Merchants and transit operators, for their part, are not likely to deploy NFC-enabled payment terminals until a critical mass of users gives them confidence that their investments in such technology will be repaid. And indeed, determining who should pay to finance the widespread deployment of the NFC mobile payments infrastructure is one of the greatest challenges to mobile payments. One industry observer estimated it could cost upwards of $10 billion to fully replace the current POS terminal infrastructure with NFC capable devices.

In analyzing the countries leading the world in NFC payments, it becomes apparent that some forcing function-such as government facilitating the development of the mobile payments ecosystem or ensuring that transit agencies deploy interoperable contactless fare payment systems has intervened to either circumvent or resolve the system interdependency paradox, catalyzing the country’s mobile payments ecosystem and causing contactless payments to arrive sooner that the marketplace alone would have otherwise delivered it. 

Conclusion:

ABI Research, a market analysis firm, predicts shipments of NFC-enabled devices will increase from 3.7 million in 2006 to 672 million in 2011. This could be driven by mobile commerce. ABI Research predicts that contactless payments worldwide will rise steadily from $226.1 million last year to $303.3 million this year to $1.08 billion in 2011. PayPal director of global communications Anuj Nayar said the company expects to process $700 million in mobile transactions by the end of this year, up from $141 million in 2009 (Forrester Research). In South Korea, 10 percent of e-commerce transactions are already handled via mobile payments (Forrester Research). NFC has the inherent security that comes with close immediacy transmissions; manufacturers must still provide security in the phones and PDAs that could transmit users’ payment information in the open to credit card and rest of the companies. Contactless payments such as NFC will surely help users work with other wireless protocols, such as Bluetooth and Wi-Fi. This approach will become even more popular if PCs, TVs, and other devices besides cell phones and PDAs become NFC enabled. The future of mobile commerce is really bright and progressive. Every country is currently growing its users of mobile and every user will be able to communicate via NFC enabled handsets.