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Is this the end of credit cards?

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Is this the end of credit cards?

Is This The End of Credit Cards?

The Death of Credit Cards, or so David Gardner of Motley Fool would have us believe may come sooner than later.  He is talking about NFC or Near Field Communications.  “Analysts estimate NFC will make it into 545 MILLION smartphones like these over the next three years alone.”

He goes on to tell us that “In fact, Research in Motion has announced that NFC will be a prominent feature of its newest Blackberry… Sprint has said its phones will support the technology by the end of this year… and Nokia has publicly stated that it will build NFC capability into all future versions of its smartphones.”

And that:

“Google has already incorporated NFC into its hugely popular Nexus S phone, and announced that it plans to build NFC into dozens more Android-based samrtphones in the near future.”

Also:

“Microsoft is planning to include it in the newest version of its operating system for smartphones — or that it now holds 14 patents referencing the technology.”

Very Compelling so far.

Key Benefits of NFC

NFC provides a range of benefits to consumers and businesses, such as:

  • Intuitive: NFC interactions require no more than a simple touch
  • Versatile: NFC is ideally suited to the broadest range of industries, environments, and uses
  • Open and standards-based: The underlying layers of NFC technology follow universally implemented ISO, ECMA, and ETSI standards
  • Technology-enabling: NFC facilitates fast and simple setup of wireless technologies, such as Bluetooth, Wi-Fi, etc.)
  • Inherently secure: NFC transmissions are short range (from a touch to a few centimeters)
  • Interoperable: NFC works with existing contactless card technologies
  • Security-ready: NFC has built-in capabilities to support secure applications

The overall credit card industry is a $2.5 Trillion business.  Actually, American consumers by the end of 2011 held over $2.5 Trillion in credit card debt.  That’s a lot of interest piling up considering the average interest rate is 12.78%.  Penalty fees from credit cards peaked at about $22.9 billion in 2009, then fell to $22.5  billion as the effects of the Credit CARD act kicked in. (Source: R.K Hammer, longtime credit card industry adviser, June 2011 report)

Everyone has a credit card, well just about everyone. If this NFC technology can take out the Credit Card industry, then surely it has to be massive right?

So what is NFC (Near Field Communications) anyway?  Those behind NFC claim that the technology makes life easier and more convenient for consumers around the world by making it simpler to make transactions, exchange digital content, and connect electronic devices with a touch.

It is enabled by hardware.  A chip to be exact, which can be installed in a mobile device and used to pay for things by touching it up against a merchant’s scanner.  While the concept of NFC is now an expanding reality, there are many players in this market.  Soon you will see App makers rushing to have their software be the standard used for NFC payment systems.  But will it really take out the credit card industry?  Well maybe the companies that actually make the plastic.  You will still have to get your revolving credit from somewhere.  In essence your mobile device becomes your credit card or your wallet even.

NFC certainly looks to be the future of wireless transactions, however looking at NFC only from this stand point doesn’t do it justice.  NFC is capable of so much more.  Keep in mind, the slam on mobile ecommerce was that consumers didn’t trust making transactions with their phones.  They didn’t feel secure.  With the fast emergence of NFC, this mindset could change fast.

We got this infographic from the NFC forum at www.nfc-forum.org, it gives you a broad picture of some of the ways NFC can be used.

Example of How NFC can be used.

Below is a video of a software developer showing off his new App at a convention utilizing NFC.

Your starting to get the picture now.

Ok, so how can you make money from all this?  According to David Gardner of The Motley Fool, the Death of Credit Cards will come from an up and coming chip maker called NXP Semiconductor.  NXP Semiconductors N.V. (NXP) is a global semiconductor company and a supplier. The Company provides High-Performance Mixed-Signal and Standard Products solutions. NXP’s product solutions are used in a wide range of automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing applications.  NXP trades under the symbol {NASDAQ: NXPI) and is up about 60% from the beginning of this year.  Take a look at the chart below (click on image for larger view):

NXPI Chart

You can see that NXPI was trading fairly low at the end of 2010 until its big move into April after announcing the successful trial testing of its ATOP telematics system with eCall in the European Union.  The company considered this a landmark event because the European Union has called for mandatory implementation of eCall for all new automobiles. According to the EU, between 2013 and 2015, all new cars should be fitted with eCall as standard. This pan-European emergency system should contribute to the fast and reliable arrival of emergency services at the accident location.  NXPI obviously hasn’t quite hit its highs of April 2011 but it is getting close.

Motley Fool says of NXPI: “Today it holds nearly 14,000 patents, employs some 28,000 people, and has operations in more than 25 countries — yet because it’s not headquartered in the United States it’s still virtually unheard of.”

And calls it “The Intel of NFC: One ‘Ground Floor’ Stock Opportunistic Every Investor Should Snap Up Today.”

Below is a comparison chart with some related companies, STMicroelectronics (STM), Infineon Tech. (IFNNY), Analog Devices, Inc. (ADI), ON Semiconductor (ONNN), Texas Instruments (TXN), Fairchild Instruments (TXN), International Rectifier (IRF), Maxim Integrated Products (MXIM), Silicon Laboratories (SLAB) and Atmel Corporation (ATML).

NXPI Related Companies

You can see overall that this industry basically follows the same trend, some more volatile then others and some get more attention then the rest.  NXPI has outpaced the rest by far, its closest performance competition since Oct. of 2010 is Infineon (IFNNY) and its cheaper.

IFNNY NXPI Comparison Chart

So what’s the difference?  Well, NXPI seems to be leading the charge for enabling NFC functions with its patented technology seemingly landing a substantial amount of mobile device contracts.  IFNNY also plays in the NFC sector, among others, with its security chips for NFC technology.  We can’t have all those financial 1s and 0s flying through the air with reckless abandon now can we?

NXPI might be the more obvious way to get involved in the NFC movement, but with big industry comes peripheral business.  If you’re going to dig further into investing ideas in the NFC sector, then you may want to look at tributary opportunities too.  Some areas to consider would be other chip makers, software developers, and security and hardware for the readers or scanners.  Who will benefit from this mobile ecommerce surge?  Certainly it will change the way we view the internet as the majority of people begin to surf the web from their mobile devices vs. the laptop or desktop computers.  But don’t count those out just yet, the computing power of a desktop by far outweighs any mobile device by leaps and bounds.

So there you have it, The Death of the Credit Card by the invisible hands of NFC (Near Field Communications).

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I began my investing career back in 1998. I quickly discovered day trading, small cap and penny stocks. I was the editor of my own investment newsletter, stock promoter, investor relations, public relations and have witnessed the back-end process of taking a private company public through reverse merger and registration. That is roughly over a decade in a nutshell. During this time I learned how to identify the rats, sharks and people who truly want to help you learn about investing. Now I do research and write. My hope is to pass along nuggets of information that could help or the very least entertain you on your way to financial success.

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