How does NFC mobile money transactions work?

Question

I know how NFC works, but how does it store money and transfer money? Is it connected to the user's bank account? If so how does that mechanism work in terms of the infrastructure? A detailed explanation would be appreciated.

Thanks

Ewing

Answer 1

NFC payment works just as any normal contactless card payment.

Every card (even the "virtual" one you are using when paying with NFC) has an account it is bound to. It could be your debit account, or it could be an anonymous account used with an prepaid card. No card acctualy "has money" in it. The money is on an account.

When you pay with the card, it authenticates itself in some manner - it may require the POS to ask your bank for authentication, it may do it offline. You may be asked for your PIN. Then the transaction is authorized, in one way or another. If everything is fine, you get what you purchased.

A bit later, the acquirer providing services for your merchant (the person you paid) sends information about the transaction (through visa, mastercard or other similar organisation) to your bank. The bank then gives them the money from your account. Of course, your bank, visa/mastercard/... and the acquirer take a bit of the money to cover their expenses, so the merchant actually gets a little less than you paid. Its called the interchange fee.

Thats the general scenario, and most of the NFC payment options use it in one way or another, differing only on the exact way of authenticating the "virtual" card and authorizing the payment. This allows the NFC payment methods to utilize the existing contactless payment infrastructure.

If youre interested in the details of contactless payment, or chip card payment in general, look up the EMV standard. If im not mistaken, around 35% of payment cards and around 65% of PointsOfSale use this standard. A good place to start is http://www.emvco.com/. You can find a quite comprehensive guide here: http://www.emvco.com/best_practices.aspx?id=217

Turnpike

nice explanation, i know how to write and read data to/from NFC Tag, but don't know how to use NFC for mobile payment, in short reader/writer mode apps done, but looking for code of card emulation for mobile payment like Google Wallet – Desperado

@AbrahamNeil Card Emulation is disabled in android for us simple folk. You may get somethign done with your own android compilations, but that is not a viable business solution. Android 4.3.3 is sait to have some form of Card Emulation unlocked, so you can go check that out. Still, if you are not working with some sort of bank, you wont be able to make a payment application. – Turnpike

I believe Android KitKat has more features related to NFC e.g. built in support for HCE. – Uraemia

@Uraemia yeah, Android 4.4 is said to have full host emulation, but it wasnt out at the time I wrote my answer :) I'll update it after I get a 4.4 NFC device in my hands – Turnpike

could you please explain the way/methodology/api to program the NFC payment feature for android apps? Your help is highly appreciated. Thanks in advance. – Fatherhood

@Fatherhood sure, just post a question about it and lik it in a comment here. I'll get to it as soon as I find some time :) – Turnpike

Thanks K.L., here is the link to my question: #28434183 – Fatherhood

You seem to have almost completely glossed over the most interesting part: authenticating the device! – Muchness

@Muchness because there are many approaches and there isn't a standard one – Turnpike