History of Mobile & Contactless Payment Systems

Near field communication is a form of mobile contactless payment, evolved from mobile and contactless payment systems of the past. Both types of technology have gone through many changes and have merged together into technologies such as NFC. See how these technologies got their start and have changed over time into the technology we have today.

Mobile Payments

Mobile payments aren’t necessarily contactless payments. Originally mobile payments and other mobile services, like mobile banking, relied on text messaging to complete transactions. Many startup companies start out with text message services for customers and later move on to mobile apps and contactless payment systems that do not require the user to send or receive a text message.

The first example of mobile payments came in 1997 when Coca Cola introduced a limited number of vending machines where the customer could make a mobile purchase. The customer would send a text to the vending machine to setup payment and the machine would then vend their product. Mobile banking first appeared in 1997 as well through the Merita Bank. It accepted text messages for making bank account transactions.

Contactless Payments

Any device capable of making payments using radio-frequency identification (RFID) technology is using contactless payment technology. The device does not have to be a smartphone though this is the most commonly used device for contactless payments. An antenna and chip embedded into the device lets the customer wave their smartphone over a card reader to make a purchase.

Security for contactless payments is the same as for a credit card. Fraud protection laws all apply, and secure channels and encryption are used for sending credit card information and PIN numbers. For high-priced purchases or several purchases within a short period of time, the user is asked to manually enter her PIN number to ensure theft has not occurred. Typically contactless payments are faster because the PIN number or a signature is not needed. It also, however, can cause the customer to spend more since paying is so quick and easy.

The first example of contactless payment came in the form of Speedpass in 1997. Mobil gas stations offered contactless payment devices that clipped onto a key ring. The customer waved the device over a labeled square at the gas pump and paid instantly. Today ExxonMobil still offers this service, and other gas stations are incorporating contactless payment technologies into their payment choices.

Evolution into NFC

How did these technologies merge to form near field communication? NFC offers the best of both worlds. Smartphones let a customer store multiple credit cards and other payment methods all in one device that the customer is likely to carry everywhere with them already. It cuts out the unnecessary hassle of texting or swiping through menus to make payments and yet still offers the security of a credit card. By offering a high level of compatibility with different companies and technologies, NFC can evolve into a one-step payment method that works anywhere the customer wants to make a purchase.