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A New Kind of Smart-Phone Connection

Handsets will soon be able to connect to other gadgets or make payments with a tap.

Several smart-phone manufacturers are developing plans to launch U.S. handsets that can connect to other devices when tapped together, or act as electronic wallets by instantly paying for goods when waved over a reader.

The technology to make this possible–Near Field Communications (NFC)–is a step beyond the contactless radio-frequency identification (RFID) technology used in many transit systems or security access cards for buildings. NFC uses the same high-frequency radio waves as RFID and can make a connection over a distance of up to around 10 meters. It is also compatible with existing RFID systems. But NFC devices can both send and receive data–something that will enable many new applications when coupled with the computational power of a smart phone.

“I think 2011 will be the inflection point for NFC–that’s when we should see volume availability of handsets in the U.S.,” said Didier Serra, founder of Inside Contactless, which makes chips and software for NFC devices, at the CTIA Enterprise & Applications meeting in San Francisco. Shipping a product with NFC hardware in large volumes takes a company around 18 months, he said and “the work started around nine months ago.” he said.

Small-scale trials have already taken place in various U.S. cities in recent years. In late 2007, Sprint handed out Samsung NFC phones in San Francisco that allowed people to use transit and make payments in stores; Visa is now running trials in New York and Los Angeles, among other cities, of a gadget made by DeviceFidelity that slides into a smart phone’s memory slot to give it NFC capabilities.

Nokia, the world’s largest phone manufacturer, announced in June that all of its smart phones would gain NFC capabilities in 2011; Samsung has been testing handsets for some time, and Apple is widely rumored to be preparing an iPhone with NFC.

Apple could have an advantage over other handset makers, said Avivah Litan, a Gartner analyst specializing in banking and payments technology. She recently coauthored a report on the possible strategy of the Cupertino, California, company’s move into contactless payments. “Apple already has a closed system of its own in iTunes that can act as a money transmitter,” said Litan. “They don’t want to become a bank–the way you get money into your iTunes account may be through your credit or debit card or a bank account–but they would handle the payment.” Litan said she expects the firm to unveil an NFC-packing iPhone next year, citing a suite of relevant patents filed by the company and recent hires who have relevant experience.

All future NFC phones should be compatible with existing contactless payment and transport systems introduced by banks and others, for example, those used on transit systems in Boston and Los Angeles, and at 7-11 and Office Depot stores. But that infrastructure isn’t pervasive enough to make that the main selling point of contactless handsets, said Serra.

“NFC enables more than just payments,” he said. “Think about being able to exchange information by tapping your device against someone else’s.” He expects manufacturers to initially pitch the technology as a way to connect a phone with another handset and device–for example, making it possible to tap a Bluetooth headset to a phone to have the two instantly pair.

“I think people will see a lot of value in that,” said Mohamed Awad of the NFC Forum, an industry body that has created specifications for NFC. “You can just tap a handset on a printer or laptop and it just connects. It’s so natural.” Although NFC can be used to transfer data at up to 424 kilobits per second–perhaps enough to transfer a document for printing, said Awad–it works best as a “helper” for setting up a higher-bandwidth Bluetooth or Wi-Fi connection.

The NFC Forum is already working on certifying the first wave of NFC devices for the U.S. market, according to Awad. “We’ve got a batch of products coming through today,” he said.

However, as Serra points out, smart-phone manufacturers and carriers are now heavily dependent on third-party developers. “For NFC to be successful, the industry has to be app-centric and allow creative developers to provide ideas and apps that users want,” he said. Social networking apps that enable people to exchange information or play games using NFC are one possible example, and this could play an important role in making the technology popular, he said.

However, consumers will also have to feel assured that NFC is safe, said Jean-Louis Carrara of the security firm Gemalto, which makes chips for smart cards and SIM cards. “People will be interested in the security of their phones, their personal information, and their payment data,” he said, adding that NFC will likely make smart phones even more attractive to hackers. “Malware is rising on smart phones already,” he notes.

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