In all the talk about the Visa and MasterCard roadmaps, it's been generally assumed that everyone everywhere knows all about Europay, MasterCard, Visa (EMV) and its presumed challenger, Near Field Communication (NFC). But that isn't necessarily the case.
For those who haven't entirely sorted out the features and functionalities of EMV and NFC, here is an overview of the technologies and how they work:
EMV was developed 18 years ago when major card companies in the U.S. and Europe allied to develop a set of interoperable standards for payment cards that held data on an embedded integrated circuit instead of a magnetic stripe.
The company they formed — EMVCo LLC — developed the first set of EMV Integrated Circuit Card Specifications in 1996 and now serves to maintain, enhance and promote the specifications. In recent years JCB and American Express have also joined EMVCo.
EMV standards are essentially protocols for the open platform used to control a tiny integrated circuit, or microprocessor. This "chip," as it is called, is programmed with digital data and processing instructions. When called upon, the microprocessor applies the instructions to the data and presents it as output.
The programmed chip is embedded in a standard plastic credit card behind gold plated conductive contacts on the front of the card. The chip is "powered up" when the card is inserted into an EMV reader, which engages the contacts.
The reader sends a command to the card, which sends a response to authenticate the card (and, in a chip and PIN transaction, the cardholder). The processor then before completing the transaction process, the card circuit generates a transaction-specific cryptogram to ensure that the transaction cannot be cloned.
The sophistication of the processor and data capacity of the chip allow it to incorporate — and generate — security features and safeguards that magnetic stripe cards cannot. (Hence the term "smart card.")
The card-embedded microprocessor can be powered without card reader contact via radio frequency (RF). RF is where EMV gets confused with NFC; however, while both use radio frequency, they don't use it in the same way.
In contactless EMV, the reader energizes and communicates with the microprocessor via RFID. Other than the mode of communication, the transaction proceeds in the same way as a contact-reader transaction.
NFC is a derivative of RFID, which was developed in the 1940s. Both are designed to employ self-contained microchips that transmit information wirelessly over limited distances. RFID chips are designed to deliver information within a few meters, while NFC chips deliver it within a few centimeters.
Used in a smart card format, NFC uses a "passive" chip. This integrated circuit transmits information only when stimulated by an external NFC reader.
The reader’s electromagnetic radio waves cause the antenna of the passive NFC chip to oscillate and generate electricity through a process called electromagnetic induction. Once powered, passive chips automatically access onboard read-only memory and then transmit the ROM contents wirelessly to a reader.
If the information is confidential, it will be stored in a memory location in a secure format. This special memory is located in a chipset called the "secure element." The secure element is separate from, but connected to, the NFC chipset.
The program requesting access must provide the secure element’s access controller with the correct authentication information. Once access has been authorized, the requested information can be retrieved from the secure element.
NFC-enabled credit cards represent a common embodiment of a passive NFC chipset employing secure element interconnectivity. It is important to note that NFC chips that access the secure element are operating in a state called the "secure card mode."
NFC: Beyond the basics
NFC also can be used with chips that dynamically engage in a two-way dialogue with external NFC reader/writer devices. These "active" NFC chips differ from transmit-centric passive chips because they can operate both as a transmitter and a receiver of information. However, they also can emulate a passive chip operating in a secure card mode.
Because of their sophistication and external power requirements, active chips are typically designed to function as an integrated component of a larger system — such as a mobile phone. For nearly 10 years, electronics manufacturers have worked to develop an NFC-enabled computing platform that can support a new breed of high-value, mobile-centric applications — including NFC-powered mobile wallets.
Leapfrogging into the future
Nick Holland, senior analyst at Yankee Group, a provider of research and analytics on mobile users, expressed confidence that NFC would eventually reach the tipping point to make it a fixture in the retail and ATM worlds.
And in a recent webinar "NFC: Not For Commerce," Holland said the shift to EMV itself would provide that tipping point.
"[A]s merchants upgrade their point of sale terminals for chip card compliance I would say that by proxy or by association they're going to have NFC as well," Holland said. "They will either consciously decide to future-proof and choose contactless technology or, as seems to be the case from current generation terminals from Verifone and Ingenico and so on, they will just have that 'baked in.' It will just be a part of the bill of materials."
Ironically, after years of lagging behind, the U.S. could find itself at the forefront of NFC adoption. Other countries that replaced terminals earlier in the switch to EMV would not have "baked in" NFC capability and would take some time to catch up as their terminals reached the end of their life cycle.
Though MasterCard and Visa have not incorporated NFC into their EMV roadmaps, they have made no secret about their expectations for the technology.
In a statement that accompanied Visa's announcement last August of its dynamic authentication roadmap, Global Head of Product at Visa, Jim McCarthy said, "As NFC mobile payments and other chip-based emerging technologies are poised to take off in the coming years, we are taking steps today to create a commercial framework that will support growth opportunities and create value for all participants in the payment chain."
(Some information in this story was excerpted from the white paper, "An Explanation of NFC," published by Mobile Payments Today.)
For more on this topic, visit the EMV research center.