In a traditional payment model the user taps a card on a Point of Sale (POS) terminal. The full payment is then executed by the terminal and delivered back to the register as a completed transaction. A market led disruption of this seemingly archaic (and certainly not secure by todays standards) model is fast bubbling up and NFC (Near Field Communication) is sure to play a significant role.
The days of the simple token in the hands of the user (the credit or ID card) is going to be replaced by the smartphone acting as the POS terminal under the control of the user. The monopoly that has long resisted and even prevented change in the payment network has been centered on control of the POS terminal. NFC, connectivity and security residing in the phones will fast change that. As NFC continues to gain a stronger foothold it will provide a simple yet modern way to deliver unique and secured transactions from one device to another while ensuring secured messaging between the devices.
In a modern payment environment the POS device is no longer the only component that is connected to the network. This over the top connectivity brings the potential for huge disruption to the monopoly on terminal networks. The meteoric rise in Bitcoin is a great example of how simple integration of technology into the cash register enables the register to securely initiate and safely complete transactions. A simple message like “Please send this much money to this address” creates a transaction ID that can then be delivered to a secure smartphone over NFC. The smartphone presents the transaction for user confirmation rather than relying on the point of sale terminal. The register can then receive a secure message from the public Internet that the transaction is complete and the funds have indeed been transferred, the payment network is no longer needed.
The shift from a network of potentially “hackable” terminals bogged down with PCI compliance to an identity based model with secure signed messages is not only enormously more efficient but far safer. It will open new models and new relationships with the customer. Moving the transaction system to the consumer has the potential to deliver both privacy and control of “big data” into the hands of the customer.
Once the customer’s device has a direct relationship with the retailer’s systems so much more becomes possible. From basic supply chain integrity as tracking of products from production to consumption becomes practical. With every transaction the user can easily build an inventory of every item ever purchased and know where it was purchased. This can become the consumer’s data and not just the retailers. It is great that Target, for instance, knows how many pens and pencils you have purchased over the years but yet the user (the consumer) does not. Smartphones make possible the real-time collection of their purchase data and systems can then push it to household management programs and more.
A personal register of what we buy is a very powerful set of data and it will need world class protection. Because the user’s device is involved it would be trivial to provide methods for encryption of these data elements so only an authorized device can retrieve and use the data. The users can easily share the keys within a household so that brand preferences and shopping lists and reminders can easily be shared. In addition, when an Item is purchased it can be enrolled within the household’s network of other things. With more devices becoming network aware the process of enrollment can then start at the point of purchase.
NFC is going to play a huge role in this going forward. These new over the top payment networks will enable a new surge in creativity in how we purchase and interact with retailers. It is time to move away from the idea of payment networks of old and move to a model of transactions, currencies, secure data, and messaging. Tapping will be how we connect.
Image credit: CC by Piers Ford
