NFC is a combination of contactless identification and interconnection technologies that enables short-range radio frequency (RF) communication between personal electronic devices, such as mobile phones, digital music players, or PDAs.

Once the two devices are wirelessly connected, they can exchange information or access content and services. NFC operates in the 13.56 MHz frequency range, over a distance of a few centimeters, which means the devices need to be practically touching, but there are still no wires to cause trouble.

The partnership between Philips and Santa Clara, Calif.-based ViVOtech will allow an NFC-enabled mobile phone to be used as a payment and promotion device. Users simply wave the mobile phone in front of a reader (in this case the ViVOpay 3000) and the NFC technology enables the mobile phone to communicate with the ViVOpay reader to transfer payment data in a secure manner.

NFC can be used to enable ViVOtech's ViVOwallet software, which includes the ability to pay and to use loyalty cards, gift cards, SMS/MMS promotions, and e-coupons. Customers can carry coupons digitally on their phones and use them for payments and to redeem promotions at any ViVOtech enabled location. ViVOtech's end-to-end solution allows payments as well as authentication of e-coupons at the point-of- sale terminal.

Consumers can also NFC technology to transfer music between digital media players by simply holding them near each other. NFC chips can be used to transfer games from computers to mobile devcies.

Right now, however, the companies are chossing to introduce the technology for contactless payments.

"Consumers are seeking easier and faster ways to make payments with their mobile devices and NFC offers a natural way to link consumers with the merchant's POS (point-of-sale) systems," said Jorge Fernandes, CEO and co-founder of ViVOtech.

Philips is one of the leaders in NFC development. In March, the company teamed with Nokia Corp. and Sony Corporation to establish the Near Field Communication (NFC) Forum. The forum works to standardize the technology and set up interoperability guidelines for devices and services.

The use of NFC for contactless payments does face some of the same barriers to adoption that card or keychain-based contactless payments will face. Someone needs to invest in the infrastructure of readers. Consumers have to be comfortable with the idea of charging transactions they usually purchase with cash out of their pocket.

By putting NFC chips in mobile phones, however, companies like Philips are putting the contactless technology in a device that most consumers already carry with them. Most of the major credit card companies are already in the process of rolling out contactless payment solutions that would be complementary to the use of NFC technology.

Consumers shouldn't expect the ability to make contactless payments over mobile phones tomorrow, according to Erik Michielsen, director, RFID and ubiquitous networks fo ABI Research, but it is coming. "Clearly, it does show a trend forward," he said.

Compared to a successful contactless payment program like ExxonMobil's SpeedPass, there is more flexibility with NFC and mobile phones. A keychain fob, for instance, is a closed-loop system. It will only work for the retailer who issued it. Not so with NFC.

"It's an open-loop system. You can make payments at several different terminals and retailers," Michielsen said.

The lifecycle of mobile phones are also an important aspect of getting an NFC program off the ground because phones with the chips and software to make payments have to gain market penetration. While there aren't many out there now, Michielsen said consumers rarely hang on to a mobile phone for more than one or two years.