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Mobile payments tech starts to go mainstream

One mobile technology that has foundered over the last decade finally looks ready to take off, thanks in part to consumers getting more comfortable with mobile payments.

Near field communication, or NFC, is a short-range wireless technology that lets mobile devices connect, exchange information and make transactions with just a touch.

NFC provides consumers with product data, special offers and loyalty rewards.
NFC Forum
NFC provides consumers with product data, special offers and loyalty rewards.

One recent leader in mobile transactions is Isis Wallet. Launched last November as a partnership among AT&T, T-Mobile and Verizon, the mobile app links to existing credit cards and lets users pay by tapping their device at checkout areas. It is the first nationwide rollout of an NFC-based payment system.

About 20,000 people are activating accounts every day, said Isis CTO Scott Mulloy. The app is available on 70 devices and now often comes pre-installed. Users lock the wallet with a PIN, and receive a unique, one-time use ID with each transaction. Theoretically, this system is more secure than a regular credit card, which uses the same code every time.

Using a dynamic ID might prevent a data breach similar to the one suffered by Target last Christmas.

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Isis also offers many in-store perks such as free Jamba Juice deals to encourage more usage.

"[With] the momentum we're seeing in main areas of the ecosystem—merchants, networks, mobile devices, banks, merchant technology providers and consumers—adoption is quite real," Mulloy said.

Through several partnerships, users can pay with Isis at many vending machines, local businesses and chain stores such as Walgreens. One of the supporting retailers, Toys R US, recorded 23,000 individual transactions during the first three months of offering payments through Isis and is "very happy with it," the company said in a statement at the NFC Solutions Summit this month.

While Toys R Us itself has not officially released findings related to Isis Wallet, spokeswoman Alyssa Peera said that mobile commerce options, including PayPal and Isis, form its "most rapidly growing channel."

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The number of retailers and consumers using Isis and similar services is growing. Carolyn Balfany, group head for U.S. product delivery at MasterCard Worldwide, said the number of merchants using contactless payments has grown 133 percent since the last year.

"What's important for mobile payments and any other payment innovation is creating a better experience," she said. "We have seen that after a consumer taps two or three times, they almost never go back, whether it's a consumer buying at the register or a commuter going through a turnstile."

Analysts generally see the NFC payments as more beneficial for retailers than credit card and mobile companies jumping into the game.

Josh Beck, consumer and technology research analyst at Pacific Crest, said mobility is just an aspect of driving customer loyalty. "The technology per se I don't think is the silver bullet," he said. "I think Visa, Master Card and Google are all going to want to get into this technology. [But] I don't think it's the only technology they're betting on."

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Philippe Benitez, vice president of marketing for Gemalto's mobile financial services group, agreed. "In the end, the purpose of the app is to increase the transactions with that business," he said. Gemalto provides security services for Isis and other major US mobile payment services.

For all its potential and application in the payments market, NFC is just one of a few contactless technologies such as Apple's iBeacon.

"I don't think beacons and NFC should be opposed. They can be complementary technologies and some players are offering both," said Forrester analyst Thomas Husson. The "most important issue here is not the technology but how you segment your customer base to contextualize services and serve the right information to the right customers in their mobile moments. Too many marketers and business people are jumping into the technology hype without defining the utility they will offer to their clients."

Back in 2004, Sony, Nokia and Phillips created the NFC Forum to establish standards for the short-range wireless communication technology.

"Three things are required for NFC mainstream adoption: device availability, solutions availability and consumer education," said Paula Hunter, executive director of the forum. She pointed to recent developments that show how the technology is picking up speed.

Growing uses include public transit passes (as in Hong Kong's Octopus Card app) and transfer of photos from digital cameras to phones. Potential uses outlined by IHS research analyst Don Tait include restaurant menus, smart maps, smart parking meters, coupons from TV or Web advertisements and business cards.

More devices are supporting NFC as well. "Nine out of the top 10 smartphone suppliers have launched NFC-enabled handsets," Tait said.

The forthcoming iPhone 6 would also add 170 million potential users, according to recent reports from Morgan Stanley and Rosenblatt Securities.

No iPhone has yet included native NFC support despite trade website predictions over the years. However, iPhone users can access Isis services by purchasing a phone case with an NFC antenna. Apple declined to comment.

Even with more NFC devices and greater adoption, many hurdles still exist. In an industry shift, one NFC publication recently rebranded to include similar technologies and an annual NFC conference folded after six years. But these changes don't disturb Randy Vanderhoof, executive director of the Smart Card Alliance, who has organized the annual NFC Solutions Summit since 2012.

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"The concern that you're detecting in the market [is that NFC] is not moving fast enough," he said. "[There's a] lack of understanding about just how big a challenge it is going to be."

—By Evelyn Cheng for CNBC.com

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