Near-Field Communication or NFC is a chip technology that, when placed in a smartphone, lets me make purchases on my credit card and never search for my wallet again.

Though there are already credit cards with NFC chips inside, this year those chips are going to make the leap to mobile phones in significant numbers. A burgeoning industry is growing up around mobile payments using NFC technology–one that has the potential to be extremely lucrative for chipmakers, smartphone makers, retailers, wireless carriers, advertisers, credit card companies, and others. It’s why you’ve probably read about phones and services looking to incorporate NFC.

How will I use it? I go shopping for a new shirt. When I find the perfect shirt and head up to the cash register, instead of whipping out my wallet and fishing around for a credit card, I just wave my phone over a payment terminal on the counter near the cash register.  The catch is you need a phone with NFC chips inside. That phone will need software that enables mobile payments, and the retailer will need to have a point of sale terminal that accepts NFC payments. The purchase will show up on your monthly credit card bill.

But let’s say this store doesn’t have my size? This is where having a smartphone equipped with NFC beats an NFC-equipped debit card: I could potentially wave my phone at a tag on a particular shirt, and up on the phone’s screen would pop places to buy the shirt in the right size online and have it shipped to me.

My phone could also keep track of points or rewards from the store and I could be sent mobile coupons to use on my phone to redeem. I could use my NFC-equipped phone only at stores (or even unmanned kiosks) that have a compatible point-of-sale terminal, which is provided by companies like VeriFone.

And the list of NFC-equipped businesses is likely to grow. In the face of the inevitable wave of payments going mobile, it’s very much in a credit card company’s interest to make sure that when the credit card it issues is connected to a smartphone, the phone’s mobile-payment feature will be accepted at a wide variety of places.

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