To begin with, let’s get the terminology clear. Contactless generally refers to the touch-and-go system used by credit and debit cards that allow you to simply tap your card to a terminal to make a small payment. NFC stands for near-field communication, and is usually meant to mean the technology that means you can tap your smartphone to a similar terminal. What’s a little confusing is that both technologies are actually NFC, but the general use of the terms makes it sound as though they are different. We’ll continue to use the two terms as they’re widely understood.
So as with all up-and-coming technologies such as this, there’s a debate over whether one of the methods of payment will take off over the other. Usually when there are two similar offerings in the market, one technology is successful and the other fades; think HD-DVD versus Blu-Ray.
Both contactless and NFC work in very similar ways, and have pretty much the same benefits and drawbacks. As things stand, you’re limited by the amount you can spend on both. In the UK, where the technology appears to have taken off the strongest, the limit is £15 or £20 depending on the provider that you’re using.
The critical thing that we think will differentiate the two is that there are a variety of different smartphone applications that allow you to hold and use a NFC wallet. This isn’t necessarily a good thing, and could well split up the market in the short term, with Apple for instance using a different system to just about everyone else. With contactless however, you’re simply using your bank and card as normal; this means it’s a lot simpler and more natural for most people.
Having said that, there is clearly the chance that smartphones will eventually replace cards for even larger payments, meaning nobody carries them around anymore. Apple CEO Tim Cook says here that he believes cards are completely outdated.
To conclude, in the short term it seems likely that contactless payments using your credit or debit card will become the norm for small purchases, more so than NFC smartphone payments. As security technology strengthens however, we may see cards phased out in favour of using smartphones – it’s not hard to imagine tapping your phone to a terminal and typing in your PIN number while it’s there for larger payments.