Beacons vs NFC – Which Payment Technology Should Your Business Use?
December 16, 2015
A growing number of merchants and consumers are turning towards mobile based proximity payments, given the imminent efficiency and convenience. According to eMarketer’s US Mobile Payments Forecast, the transaction value of proximity payments is expected to triple in 2016 due to broader merchant acceptance and a larger number of consumers using their phones to make point-of-sale payments on medium and high-priced products.
NFC (Near Field Communication) and iBeacon are two of the most popular technologies, when it comes to proximity payments. While both NFC and iBeacon are technologies that allow for data transfer via proximity and peer-to-peer (device to device) payment solutions, they differ in their basic working and in the hardware infrastructure that they call for. This leads to varying degrees of accessibility, security and accuracy between the two solutions. Some of the other basic differences between the two technologies have been discussed in our earlier blog – Beacons vs NFC vs GPS.
To get a better idea about the applicability of these two technologies, let us first look at the basic working and features of each.
How do these technologies work?
Beacons – BLE beacons power wireless data transfer by consuming minimal amounts of power. These devices continually relay a discovery signal that is received by BLE enabled smartphones within the range of transmission – the approximate range of a beacon is 70 meters.
Most smartphones today support BLE, although it is required that the user has turned on the bluetooth on his phone, in order to receive the signals from a beacon. A comprehensive understanding of beacons can be gathered in our beacon FAQs post.
NFC –NFC is a short-range, wireless link that has evolved from radio-frequency identification (RFID) technology and can transfer small amounts of data. NFC tags communicate with NFC enabled smartphones only when they are placed within close proximity of each other (optimally under 4cm).
Beacons – Beacons essentially allow a one-to-many experience, where one beacon transmits signals that are picked up by all the phones within the beacon’s range. When a consumer’s BLE enabled smartphone is placed within the range of the beacon, it receives and measures the signal strength in order to calculate the approximate distance from the beacon. The OS of the phone then extracts the beacon ID and makes the ID available to the appropriate app on the phone. After these steps are completed, the app decides on the next course of action, based on the user’s location.
NFC – NFC is a one-to-one experience. A user has to first identify an NFC tag, which is usually attached to an object. The user is then required to place his NFC enabled smartphone close to the NFC tag(usually within 4cms). Radio waves from the smartphone awaken the microprocessor of the NFC tag; once the processor is powered up, a stored program is executed to transfer the contents of the tag’s memory to the smartphone. The smartphone then executes an action based on the content received.
How payment processing happens
Beacons – Upon entering a store, a consumer’s payment app identifies the beacon signal and alerts the merchant’s POS system of the user’s presence. At the time of check-out, the store posts the purchase to the consumer’s mobile payment account, which is also visible on the POS system at the checkout counter.
Another alternative to this, is to allow the consumer to scan the item and pay on their own, without the involvement of the store’s cashier. This particular method allows for actual payment freedom, as it requires no interaction with any associate from the merchant’s end. Such payments are usually authorized on the phone over a BLE connection with a POS beacon, anywhere in the store. The POS beacon then connects to a payment network to process the payment. Authorization for such transactions may vary between providing a PIN approval to randomly checking customers (either in person or digitally) when they are leaving the store.
NFC – In order to make a payment via NFC, the customer first informs the store cashier about wanting to make an NFC payment and chooses a card from his mobile wallet. He then taps the phone on the store’s NFC payment terminal. All NFC payments require the merchant to have a contactless payment terminal in place.
Pros and cons of processing payments via Beacons and NFC
Pros – One of the biggest advantages of processing payments via beacons is the payment freedom that a user gets to enjoy. It allows users to connect to a POS terminal or the cloud, from wherever they are in a store. Thus, no matter how crowded it is, the customer can avoid waiting in long queues.
Beacons also cover a wider wireless range (typically 1m to 70 m) when compared to other proximity payment technologies. Also, most smartphones today come enabled with BLE, making it easier for merchants and consumers to adopt this payment solution.
Cons – One of the primary requirements of beacon payment solution is the investment in physical beacons that the store has to make. Apart from this, beacon payments require that the customer has the bluetooth on his/her phone switched on.
Pros – NFC payments tend to be more secure, as NFC supports encryption and payments are made over shorter distances. Apart from this, NFC payments are compatible with most existing contactless payment and transit systems since they all operate at the same radio frequency whilst BLE beacons operate at a different radio frequency band.
Cons – NFC payments require the merchant to invest and set up contactless payment terminals at the store’s checkout counters. Additionally, not all phones might support NFC, making the adoption of the technology slower.
Both NFC and Beacons offer efficient payment solutions. However, beacons are more powerful at delivering a richer consumer experience. A beacon wallet app can be teamed together with a merchant’s store app to push personalised offers and loyalty programs to customers. Beacons also allow merchants to collect a wealth of data around a customer’s preferences, purchase patterns and other important store metrics.
A good example of this is how leading beauty brand, Sephora, recently piloted beacons together with mobile wallets. The brand used their Beauty Insider program–to alert women about the products in their shopping basket, on their mobile wallets. Beacons also alerted them to get a mini-makeover near the store’s Beauty Studio and reminded shoppers to use their Beauty Insider card to obtain reward points which ultimately led to increased customer loyalty.