What will Google do with NFC?

Yesterday Google's CEO, Eric Schmidt, demonstrated an Android handset with integrated NFC. And while conventional wisdom says that's not enough to kick-start proximity payments, Google has never followed convention before.

Gingerbread, the next incarnation of the Android OS, will have a standard API for interaction with Near Field Communications hardware. Schmidt showed an unbranded handset with NFC hardware integrated: we don't know which of the two APIs will be implemented, or who gets the key to our wallet replacements.

The inclusion of NFC is no surprise, but Google's unqualified support means that NFC-enabled Android handsets will proliferate next year, even if it remains unclear what we'll use them for. Even the good Mr Schmidt reminded reporters that it will be some years before Android handsets start replacing wallets. But if Google embraces the model it could happen sooner than most of the industry expects.

NFC, or "N-Mark" as it is more properly known (now that "NFC" has become a generic term), consists of three parts: a tag that can be powered and read by induction, a reader that can power and read a similar tag, and a secure element which can store cryptographic secrets in perfect confidentiality.

The latter has proven so political, as Visa and Mastercard will not stick their secrets into any old RAM, and the backing of such important players has always been seen as essential to the success of any NFC rollout.

Operators, in their arrogance, have tried to have the secure element put into the SIM, while manufacturers have embedded it into the phone and Visa/Mastercard are currently pursuing a removable-media strategy. NFC works no matter where the module is, but taking a build-it-and-they-will-come approach could make the secure element less important than it initially appears.

For non-payment applications, such as pairing a phone with a TV for DLNA playback, or registering that you "like" a coffee shop by tapping your phone on the counter, the secure element is overkill. The standard APIs built into Gingerbread will ensure that such applications can be quickly built and deployed.

More worrying, for incumbent players, is that new entrants such as Bling Nation don't need the secure element either, so they can deploy a good deal faster than established players.

Bling Nation, already on trial with Facebook employees, uses only the tag part of the N-Mark standard to provide a membership number to the reader - everything else is in the cloud. That limits its application to low-value transactions, but by keeping things simple, Bling Nation could provide an adoption path without the big bang that N-Mark was expected to need.

One can imagine NFC-capable Android handsets very quickly being utilised by Facebook and its ilk for social networking, and pairing up for network games. Bling Nation or similar would be a natural evolution – allowing users to make small payments without needing the bulletproof security of the secure element - and thus working on every Android handset.

Handset manufacturers will need to decide where to put that secure element, and Google will naturally offer to take control as some sort of extension to Google Checkout. This would not be mandated, of course. The user won't be able to over-ride the restricted access to the secure element any more than they could override the security of their SIM chip.

Manufacturers who decide to put in their own secure element will need to go begging to Visa, Mastercard and so forth to have those applications ported to their own secure element. Operators who manage to convince manufacturers to give them control, though the SIM, will be faced with the same problem of getting applications ported.

Visa and Mastercard will retain their microSD strategy, providing a second (competing) secure element, but in the long-term, secure applications will migrate to the (Google-controlled) element in the handset.

Not that Google will be alone in this: the next iPhone will have the same functionality, and a secure element, though they'll be no debate about who has control. Apple will integrate pre-payment systems with iTunes – while graciously permitting credit card companies to port their apps onto the iPhone if they wish.

In this way Google, and Apple, become the custodians of our wallets. Simplistic payment systems such as Bling Nation get a window of opportunity while Visa and Mastercard negotiate to have their applications integrated with the secure element in the handset. Meanwhile Nokia, which led the NFC charge, is left ruing the day it ever let operators tell it what to do. ®