NFC Phones and Digital Wallets

NFC Phones are phones enabled with near-field communication chips.

NFC Digital Wallets

Companies like Google and Verizon are scrambling to be the first to implement a mobile payments system that allows a cell phone to carry and transmit credit card information. The technology involves using near-field communication (NFC) chips that can transfer small amounts of information over short distances. It allows transfer of credit card information or coupons, for example.

Digital WalletsVerizon teamed up with Discover to try and implement a new NFC mobile payment system called ISIS, but later decided to create a digital wallet system. Google, in partnership with Vivotech, a NFC terminal provider, is following a similar path, deciding to offer a digital wallet where the credit card information is stored in the NFC chip rather than the SIM card, which is carrier-controlled.

The winner of the battle between SIM and NFC storage of data will determine who controls the transaction and could shape the mobile payments industry for years to come. Currently retailers pay a fee to process a credit card transaction, but digital wallets have the opportunity to turn that on its head by offering retailers a part of the transaction back for accepting the NFC payment as an incentive to do so.

It’s unclear at this time how exactly Google or anyone else would make money on the payment processing, but by putting themselves at the gateway, they have a huge advantage in influencing that in the future. Apple knows this and is why they created a mobile payments system that will work with the iPhone and iTunes.

Credit card companies and the banks who back them make millions of dollars each year by taking a percentage of each transaction in exchange for the convenience of processing that transaction. Retailers have long looked for a way to reduce these fees and with innovations like NFC and the near ubiquitous cell phone and the credit card make the digital wallet a almost certain reality.

What Is a Digital Wallet?

A digital wallet stores your information in the same way a physical wallet would, but it allows users to make transactions quickly and securely because its electronic. There are two major forms of digital wallets: services that store your payment information online and electronic devices such as a smartphone that can store and transmit your payment information.

Internet Payment Services

An online payment service functions much like a physical wallet, allowing internet users with a convenient way to store and use online shopping information. Examples of digital wallet payment services include Paypal, Google Checkout, and’s 1-Click Ordering. This term is also known as “Internet payment services”.

Electronic Devices

NFC TransactionAn individual’s bank account and/or credit card information is usually linked to a digital wallet stored on a mobile device such as a smartphone that stores an individual’s credentials and utilize wireless technologies such as near field communication (NFC) to carry out financial transactions. They might also have their driver’s license, health card, loyalty card(s) and other ID documents stored on the phone. The credentials can be passed to a merchant’s terminal wirelessly via NFC. Certain sources are speculating that these smartphone “digital wallets” will eventually replace physical wallets. The system has already gained popularity in Japan, where digital wallets are known as Osaifu-Keitai or “wallet mobiles” and both Visa and Master Card (with Google) are working on their own systems in the United States.

Although NFC-enabled phones will more than likely become the standard, any electronic device that allows an individual to make electronic commerce transactions can be considered a digital wallet. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store (via NFC technology or with an app like Starbuck’s Card Mobile App). Increasingly, digital wallets are being used to authenticate the holder’s credentials in the same way that a physical wallet would. For example, a digital-wallet could potentially verify the age of the buyer to the store while purchasing alcohol or cigarettes.

Are Digital Wallets Secure?

Digital wallets use encryption software that provides security during electronic commerce transactions. The consumer and merchants benefit because his or her information is protected against fraud. Most digital wallets reside in individuals’ online accounts or on their electronic devices, but they can also be stored on the credit card issuer’s server in what is called “thin” wallets, which is supported by most modern browsers. Both are meant to add a layer of security that some say trumps that of physically possessing a card.