NFC Payments

Introduction to Near Field Communication (NFC) Payments

What are NFC Payments?

NFC payments refer to contactless transactions conducted using NFC technology-enabled devices, such as smartphones or wearables. NFC allows two devices to establish a short-range wireless connection, enabling secure data exchange within a close proximity of a few centimeters.

How NFC Payments work

  • Initialization: The NFC payment process begins with the initialization of the NFC communication between the customer's mobile device (initiator) and the merchant's payment terminal (target). This can be triggered by the customer placing their device near the payment terminal or tapping it on the terminal.
  • Communication Establishment: Once the NFC communication is initiated, the devices establish a secure wireless connection. This connection allows them to exchange data within a close proximity of a few centimeters.
  • Payment Data Transfer: The customer's mobile device, acting as the initiator, sends payment data to the payment terminal, which acts as the target. The payment data typically includes information such as the payment amount, merchant identification, and transaction details.
  • Secure Element Authentication: In NFC payments, the customer's mobile device often utilizes a secure element, which is a dedicated hardware component that stores sensitive payment data securely. The secure element authenticates itself with the payment terminal to ensure the integrity and security of the payment transaction.
  • Payment Authorization: The payment terminal receives the payment data from the customer's device and validates the transaction. It checks the payment amount, verifies the merchant identification, and performs necessary security checks. The payment terminal may communicate with the acquiring bank or payment processor to obtain authorization for the transaction.
  • Transaction Confirmation: Once the payment authorization is received, the payment terminal sends a confirmation to the customer's mobile device. This confirmation may include details such as the transaction ID or receipt information. Simultaneously, the payment terminal may generate a payment confirmation on its own display for the customer to view.
  • Secure Payment Token Exchange: To ensure security, NFC payments often utilize tokenization. The customer's sensitive payment information, such as card details, is replaced with a unique payment token during the transaction. This token is then transmitted securely to the payment terminal, protecting the actual card information from being exposed during the payment process.
  • Transaction Completion: With the payment authorization confirmed and the payment token securely transmitted, the payment terminal completes the transaction. The customer's account is debited, and the merchant receives payment for the goods or services rendered.
  • Transaction Logging and Reporting: Transaction details, including the payment amount, transaction ID, and other relevant data, are typically logged and stored by the payment terminal or transmitted to the acquiring bank or payment processor for further processing, reporting, and reconciliation.
  • Receipt Generation: Upon completion of the transaction, a receipt can be generated. Depending on the implementation, the receipt may be provided digitally to the customer's mobile device, displayed on the payment terminal, or printed if required.

NFC Technology Terminology:

NFC is a subset of radio-frequency identification (RFID) technology and operates on the principles of electromagnetic induction. It utilizes radio waves to enable communication between devices by leveraging magnetic fields to transmit data.
To grasp the technical aspects of NFC payments, it's essential to familiarize yourself with the following terms:
NFC Chip
An NFC chip is a hardware component embedded in devices that enables NFC functionality. It comprises an integrated circuit responsible for communication and data transfer.
NFC tags are passive devices that store data and can be read or written by an NFC-enabled device. They can be embedded in smart posters, stickers, or products, allowing users to interact with them using NFC-enabled devices.
Initiator and Target
In an NFC transaction, one device acts as the initiator, which initiates the communication, and the other as the target, which responds to the initiator's requests.
Peer-to-Peer Mode
NFC supports peer-to-peer communication, allowing two NFC-enabled devices to exchange data directly without the need for a network connection. This mode facilitates various applications like file sharing, contact sharing, and mobile payments.
Secure Element (SE)
The Secure Element is a hardware component that stores sensitive data, such as payment credentials, securely. It provides tamper-resistant storage and cryptographic capabilities to protect the integrity and confidentiality of the stored data.
Secure Element Access Control
SE Access Control defines rules and permissions to access the Secure Element. It ensures that only authorized applications can access and use the sensitive data stored within the SE.
NFC payments enable customers to make secure, contactless transactions using their mobile devices, while merchants can conveniently process these payments using NFC-enabled payment terminals. The underlying security measures, authentication, and tokenization ensure the confidentiality and integrity of the payment data throughout the transaction.
Last modified 6mo ago