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NFC, Mobile Wallets and the Mobile Payment Revolution

We've heard about mobile wallets for the last few years, but NFC-based payment technology has yet to catch on with most consumers and retailers. The latest news comes from coffee giant Starbucks, which reports that 10 percent of its transactions in the U.S. are made with a mobile wallet.

NFC-based systems offer convenience along with potential rewards and advertising advancements, but security concerns loom. Research firm Strategic Analytics recently slashed its forecast for NFC-based payments. It projected $1 trillion in payments by 2017 in May, but cut that number to $48 billion in October.

Big tech names are vying to take hold of the mobile-wallet market. To do so, they'll have to prove their value to consumers and compete with mobile credit card processing providers.

Pros and Cons

The obvious benefit of a mobile wallet system is convenience. It's easier to scan a phone than it is to swipe a credit card, and if every retailer had NFC technology, consumers could eliminate the possibility of losing credit cards. Businesses are more excited about the technical potential of mobile wallets.

Vendors could use smartphone features including location services and push notifications to direct more targeted advertising at customers. If a customer has demonstrated a pattern of buying a certain product and that product goes on sale, the mobile wallet could enable businesses to send an automated alert. It's smarter advertising that consumers will appreciate.

NFC-based technology has its critics, however. Some argue that this new technology paves that way for hackers to exploit weak mobile security. So far, mobile malware hasn't been a huge issue. Google security engineer Adrian Ludwig estimates that just one in 100,000 apps downloaded by Android users poses any threat, according to Economist.com.

We've seen a drastic rise in mobile phishing scams. In 2012, a Cloudmark post revealed a 900 percent increase in SMS phishing attempts over the course of a few weeks. Mobile wallet providers will need to protect their partners if they expect to catch on any time soon.

5 Contenders

Research firm Javelin believes that five prominent companies are positioning themselves to grab the lead in the mobile markets arms race. Apple, Google, Facebook, Amazon and Paypal had combined 2012 revenues totaling nearly $300 billion, and they're all vying to be king of the mobile payments market.

Apple made its first splash in the mobile-wallet market with Passbook, which has failed to impress most. The App Store currently lists 37 Passbook-compatible apps, a fair amount, but not enough to take control of the market. Apple currently doesn't support NFC transactions, so it's only a limited mobile wallet. Google Wallet, on the other hand, does support NFC devices.

Forbes.com Paula Rosenblum opined that NFC is a fading fad and that e-commerce business PayPal would win the mobile payments race. Rosenblum's point is simple: NFC technology isn't much more convenient than a credit card. PayPal offers an NFC-like system called Beacon, which uses Bluetooth to process transactions. Consider Paypal the leader out of the gate, but this race is far from over.

Author: Tasha Flores - Tasha is an entrepreneur focusing on developing apps for business

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