Will NFC Deliver?

February 13, 2013 Bill Colleran

Will NFC Deliver?

I’m often asked if Impinj will release an NFC chip.  It’s a good question because Impinj is a leader in selling RFID chips, and NFC (or near field communication) is a related technology.  To simplify the following discussion, I’ll describe the two popular types of RFID.  First, there’s the newer RFID called UHF Gen2 (or just Gen2), which is gaining widespread adoption in inventory tracking and similar applications.  With UHF Gen2 an RFID reader can identify thousands of tags per second located tens of feet away.  (UHF is short for ultra-high frequency and refers to the 900 MHz band where Gen2 operates.)  The second type of RFID is the legacy HF technology that’s familiar to most people from its use in key cards and bus passes.  (HF is short for high frequency, referring to its 13 MHz operating band.)

NFC, which evolved by simply marrying legacy HF RFID with an enhanced security protocol, received lots of attention recently when cellphone manufacturers began including NFC chips in handsets.  And while the volume sold into that market is impressive, I have yet to see a compelling use-case for NFC.

Gen2 versus HF

At Impinj, we’ve concentrated our efforts on Gen2 for several reasons.  Being a couple of decades newer than HF RFID, Gen2 is superior in virtually every respect.

  • Gen2 systems offer dramatically better range and throughput with tags that are much less expensive than HF tags.
  • Gen2 can operate at ranges of 30 feet or more; HF at a few inches.
  • Gen2 can identify thousands of tags per second; HF only a few.
  • Gen2 tags cost 5 to 10 cents; HF tags 10 times as much.

So why doesn’t everyone immediately switch from HF to Gen2?  Two reasons.  First, Gen2 readers are very sophisticated radios operating at 900 MHz, and they consequently are still relatively expensive.  While an HF reader can be installed for a few tens of dollars, a Gen2 reader requires hundreds of dollars.  So in applications where infrastructure costs are key, HF currently has advantages.  Second, HF RFID has a proven track record of delivering robust performance in certain applications.  Nobody would seriously consider replacing HF readers with Gen2 in an office building or subway system to save money on tags.  Incumbency has advantages.  So for almost all new RFID applications, Gen2 is the technology of choice.  For key cards, bus passes and a few others where legacy infrastructure exists and tag cost is not an issue, HF is still the way to go.

Enter NFC

Faced with the dilemma of a legacy HF business being eclipsed by a newer, more capable Gen2 technology, HF marketers arrived at an extremely clever solution.  Promote one of HF’s technical disadvantages, short range, as a feature that assures privacy.  Add a cryptographic security protocol for good measure. Then give the technology a new name (NFC), and voila, you’ve created a new market with legs.  Brilliant.  But let’s look at the applications using NFC today.

Probably the most familiar application is “bumping” where two cell phones exchange information: business cards, photos, files, whatever.  While this application is catchy, and several TV commercials play on the theme, bumping is hardly a killer app.  After all, ubiquitous Bluetooth offers the same or better capability, but nobody uses Bluetooth to exchange files.  It’s hard to imagine NFC-based bumping faring much better.

Another oft-cited NFC application augments print advertising by automatically providing consumers with complementary, multi-media content.  For example, in one of last year’s editions of Wired Magazine, readers could wave an NFC-enabled smartphone over an NFC-tagged Lexus advertisement to launch an application, demonstrating the car’s features.  The fast, user-friendly experience was simpler than scanning a QR code and could easily be extended to posters in shopping malls and movie theaters.  But it’s hard to imagine the enhanced convenience over QR codes outweighing the cost of placing millions of NFC tags in magazines.  No, the real killer app for NFC is mobile payment.

Shortfall of NFC Payment

Several tech behemoths have backed NFC in the mobile payment race.  Google’s Android operating system supports NFC in cell phones.  Google, BlackBerry, Microsoft, Mastercard and others provide payment services allowing NFC-enabled smartphones to function as digital wallets.  Yet, despite enormous investments by these companies and the availability of hardware and software to facilitate mobile payment, awareness and use of these NFC systems remains extremely low as reported recently by ComScore.

What’s preventing NFC payment from becoming commonplace?  Incumbency.  The same hurdle that prevents Gen2 from overtaking HF in key cards and bus passes.  That is, the incumbent infrastructure for payment processing is based upon bar code readers rather than NFC.  Check any point-of-sale terminal in any store in the developed world, and you’ll find a bar code scanner.  But you’ll almost never find an NFC reader system.

So while NFC advocates are planning for and betting on broad NFC infrastructure deployment, others are leveraging the existing bar code infrastructure to enable mobile payment.  We’ve all seen smartphone apps that produce on-screen QR codes which are scanned by existing bar code readers.  These systems, in widespread use by airlines as digital boarding passes and by retailers like Starbucks to implement payment, use existing bar code readers.  Incumbency has advantages.

Many speculate that Apple excluded NFC from the iPhone 5 because of the sparse infrastructure supporting NFC payment.  Apple will likely drive mobile payment through its Passbook system which generates on-screen QR codes readable by barcode scanners which are prevalent everywhere from grocery stores to airports to movie theaters. Other cell phone manufacturers and app developers will follow suit.

What’s Next?

I contend that the incumbent infrastructure (if any) largely determines which technology will dominate a particular market segment.  In new applications for RFID where no infrastructure exists, Gen2 will carry the day over HF or NFC.  In mass transit and access control (think bus tickets and key cards), HF infrastructure predominates, so these systems will upgrade from HF to NFC, not Gen2.  In retailing, bar code infrastructure is ubiquitous, so QR-based mobile payment will prevail over NFC.  Back to the question at hand: Will Impinj develop an NFC chip?  Like Apple, we continue to evaluate the market’s needs, but one key tenet is to follow the infrastructure because incumbency has advantages.

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