Understanding NFC Transactions: Communication with the Issuing Bank

While Near Field Communications (NFC) is primarily known for enabling contactless payments, it is crucial to understand the role of NFC in the broader context of payment transactions, especially when it comes to communication with the issuing bank. This article explores how NFC transactions are handled, emphasizing the role of merchant POS (point of sale) systems and the network processing behind these transactions.

What is NFC and Its Role in Payments?

Near Field Communications (NFC) is an international standard for close proximity communications. Despite its reputation for being a payment solution, NFC is more accurately described as a communication protocol. This means that it can be used for various purposes, including payment solutions like Google Wallet and Softcard (formerly Isis), which do not require an online connection to function.

Communication Protocols in NFC Transactions

In the context of NFC transactions, the communication process is similar to that of traditional magnetic stripe transactions. The primary goal is to securely transmit card information from the NFC-enabled device to the merchant's point of sale (POS) terminal. Here are the key steps involved:

NFC-enabled devices within range: For NFC transactions to occur, the mobile device must be within a range of two inches from the merchant's POS terminal. Transmission of Payment Data: The relevant payment data is transmitted wirelessly and securely to the merchant's POS system. This data does not include the actual card numbers, but rather a secure token or anonymized information. Network Processing: The network that processes these transactions, often VisaNet, BankNet, or AmEx, communicates with the issuing bank to authorize and settle the transaction.

Role of the Issuing Bank in NFC Transactions

Just as in traditional magnetic stripe transactions, the issuing bank is contacted by the payment network (VisaNet, BankNet, or AmEx) to process the transaction. This communication can occur over an internet-based connection or through a private network. The key difference is that in NFC transactions, the network handling connections might not always rely on the merchant having a 4G connection. Instead, many merchants use traditional telephone lines or wired/wireless networks to transmit payment authorization and settlement requests.

Why Don’t Merchants Use 4G Connections?

Only some merchants, such as mobile vendors or plumbers at a customer's house, might use a 4G connection. Most merchants opt for more reliable traditional networks for several reasons:

Reliability: Using a wired or wireless network is more reliable and less affected by intermittent signals or network outages. Cost: While 4G can be convenient, it can also be more expensive for many merchants to rely on solely. Secure Connections: Traditional networks often offer more secure and stable connections, reducing the risk of interruptions during transaction processing.

Conclusion

Understanding the intricacies of NFC transactions is essential for merchants and consumers alike. By recognizing that NFC is a communication protocol rather than a payment solution, we can better appreciate the role of merchant POS systems and the underlying networks in ensuring secure and reliable transactions. Whether an NFC-enabled device or a traditional card, the issuing bank plays a crucial role in verifying and processing the transaction, ensuring that payments are both secure and efficient.

Keywords: NFC Transactions, Near Field Communications, Merchant POS