This email takes a break next week, to return on July 5. If you are also hiking around the Dolomites, give me a wave!
Sometimes people ask me how I come up with story ideas. They mostly spring from divine inspiration. But occasionally I ask other people what’s on their minds. I tried this question on Plaid co-founder Zach Perret at the Money 20/20 conference a few weeks ago. It was a calmer time in the fintech world, before Facebook formally unveiled its cryptocurrency project (more on that below).
Perret suggested I look into near-field communications (NFC) technology. This is the tech behind contactless payments, among many other things. It has caught on like crazy in the UK, and seems likely to catch on in the US over time. We both wondered why quick response (QR) codes are so widely used in China, while NFC seems to be taking off in the West.
I spoke with Alex Wyglinski, professor of electrical and computer engineering at Worcester Polytechnic Institute, to find out which technology is faster, more secure, and more inclusive.
QR codes, as Wyglinski told me, are a pattern of white and dark colors that can be detected by your phone’s camera and then translated into ones and zeros that might signify, say, diapers to your phone’s computer. They’re cheap and easy to make, as all you need is a printer and an application that can turn the data into a code. They can also be very secure. If you’re using one to pay for something with your phone—transmitting your debit card credentials, say—it’s difficult for someone to get in the middle and spy on the data.
NFC tags, on the other hand, use electromagnetic waves and rely on “energy harvesting.” The NFC tag contains a tiny chip, an antenna, and a coil of wire. When electromagnetic energy from a wireless signal (emitted by the NFC reader) passes over the tag’s wires, it creates current that flows through the wires and powers the device, sending out a signal. “It turns it on just long enough to do its computing thing,” Wyglinski says. You can buy NFC stickers for around 20 cents or probably even less.
The tech was pioneered in the 1970s and 80s by inventor Charles Watson, who came up with a radio-operated door lock. (He also dreamed up a better gopher trap.) These days, smartphones from Samsung and Apple can read NFC as well as make contactless payments.
The thing about NFC is that it sends out the signal for 10 centimeters (about 4 inches) in every direction. “It’s going to blast everywhere,” Wyglinski said. “It’s like, ‘Hey, this is my identity, this is my credit card information!'” It’s technically feasible for someone to snoop on that information—more feasible than with QR codes—but Wyglinski says it’s a lot harder than it sounds.
One of his PhD students researched that problem and found stealing information this way—which would require placing a physical device close enough to listen in—was extremely difficult. (The Chinese government, perhaps, sees things differently. The state broadcaster publicly shamed UnionPay’s mobile payment service, claiming its NFC system was vulnerable to fraud. UnionPay reportedly disputed this, saying it happens in only about two out of 10 million transactions.) Apple, for what it’s worth, beefs up the security with biometric authentication.
NFC is great, Wyglinski noted, if you want to identify a serial number on a one-ton shipping crate, and the tag is located on the bottom of the crate. QR codes are better if you’re ultra paranoid about security. They’re a little more secure, cheaper, and more inclusive, since it’s easier to print out QRs than it is to order an NFC tag. Both are pretty fast.
NFC seems to have more traction in the West, where it’s getting adopted by industry and consumers for payments. Wyglinski is diplomatic about it: “I don’t think there’s one that’s better than the other, besides security versus convenience,” he says. Ultimately, it becomes a cultural habit.
One upside is that NFC is bound to get better. As it becomes more commercialized and mainstream, more engineers will get assigned to making it more robust and secure.
This week’s top stories
1️⃣ You may have heard that Facebook formally unveiled Libra, the cryptocurrency project it’s leading. Here’s our everything-you-need-to-know story. Visa and Mastercard shares twitched when the news came out, but it probably means little for them in the near term. Western Union took a bigger hit. The political and regulatory reaction is the thing to watch going forward.
2️⃣ Tech companies will now be able to store funds on interest-bearing accounts at the Bank of England. The move could make payment services and basic banking cheaper and more inclusive. Governor Mark Carney also said the terms for regulating Facebook’s Libra will be decided before it’s allowed to launch in the UK.
3️⃣ Banks have spent $1 trillion on tech and aren’t getting much from it. Despite heavy spending on IT during the past three years, most financial institutions are seeing little return on the investment, according to Accenture.
4️⃣ Cyber attack is one of the biggest risks for the financial sector. Banks have been focused on preventing service outages, but corrupted transactions by state-backed hackers are an even bigger worry.
5️⃣ Tech companies like PayPal and Google are wary of the US’s special-purpose bank charter. American Banker reports that the firms are worried it could damage their relationships with state regulators, and are unconvinced that the fintech charter will survive legal challenge.
Heard on headphones
“If payments becomes a really important part of what we do, we can—we’ll have some options and choices about how we choose to—how to have the revenue flow to us in the future,” Facebook CEO Mark Zuckerberg said (pdf) on an earnings conference call in April. “The way that we’re thinking about it is offering as many of these things at cost and for free as possible … I would imagine that that will come and contribute to our business through advertising in the way that it has historically.”
The future of finance at Quartz
Latinos and African Americans spend about $765 million more than they should each year on US mortgage interest because of discrimination. Fintech algorithms are about 40% less discriminatory than face-to-face loan methods.
Slack’s direct listing is raising questions again about the traditional IPO process. For companies that don’t need capital, it’s an increasingly viable way to get shareholder liquidity.
Pass the Libra. In Ancient Rome, the Libra was a unit of weight used to mint coins. It also evokes the French libre, and the corresponding astrological symbol—the scales of justice. In Australia, it’s also a popular tampon brand.
Always be closing
- Ripple is investing up to $50 million in MoneyGram. The money transfer company, whose stock price doubled on the news, will use XRP cryptocurrency for remittances.
- Small-business lender Idea Financial obtained $70 million in financing from Cross River Bank.
- Zego, which provides insurance for gig economy workers, raised $42 million.
- Belfast-based LoyalBe, a loyalty and rewards app, secured a six-figure seed funding boost.
I hope your weekend is invigorating and profitable (pick your own metric). Please send any NFC tags, tips, and informed opinions to firstname.lastname@example.org.