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Security concerns key to growth of Near Field Communication chip markets

Near Field Communication (NFC), and its leading application, contactless payment, offer financial institutions a way to move small transactions out of the cash economy and into profitable credit-based systems. For consumers who hate to wait, they offer faster, easier checkout, just by waving a wireless phone near a point-of-sale reader.

But the development of the market for the chipsets that underpin the technology has been slow. The main reason for this, according to ABI Research senior analyst Douglas McEuen, is security: the financial institutions and industry standards-setting bodies around the world can’t yet agree on the appropriate levels and methods of data protection.

“The main NFC IC vendors, companies such as Infineon, NXP, and Inside Contactless, are locked in a three-way conversation,” he says.  “Of course they have to deal in the first instance with the OEMs who make the handsets.  But they also have to take into account, at an early stage of design, the security concerns of the financial institutions and the revenue concerns of the mobile operators.  Operators in the GSM world would like to see the security mechanisms included in the SIM card to better support their ability to monetize payment application management while financial institutions have pushed for it to be included in the NFC chipset itself.”

Price is also a factor.  “Currently, NFC chipsets run over US$2,” notes McEuen.  “If the price continues to decrease towards the US$1 range, and in combination with the already existing NFC market opportunities provided by contactless payment growth, adoption will take off.  But ABI Research’s forecasts do not suggest that happening before 2012, due in part to lengthy trial periods attributed to differing viewpoints on the placement of the secure element.”

Once all these conditions are met, however, technical progress is likely to be rapid.  McEuen concludes, “The technologies are well-understood and the product development roadmap is very similar to that of Bluetooth, which will make the leaps to next-generation products faster, cheaper and easier.”


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