NFC works on top of three crucial innovations in wireless tag readers, cryptographic credit card processing and peer-to-peer (P2P) connectivity to enable various applications.

NFC builds on the work of the RFID set of standards and specifications, such as ISO/IEC 14443 and ISO/IEC 15963. These take advantage of a wireless communication technique using different physical principles than most wireless radios. Whereas most radios transmit data via radio wave propagation, NFC transmits data via magnetic field induction. NFC data transmits data at 13.56 MHz, which corresponds to a wavelength of 22 meters.

One critical aspect of transmitting data via induction coupling rather than radio waves is that the field fades out far more quickly than radio waves. This is useful for preventing people from listening in on sensitive conversations about credit card transactions, door access codes or other confidential information.

The second significant NFC innovation involves cryptographic credit card processing used for contactless payments. Public-key cryptography allows the card to generate a new authentication code for each transaction without revealing the raw card details or three-digit code on the back. This ensures that even if someone were to listen in or a hacker queried a card on a busy subway, they would never glean the original card details.

The NFC forum, a nonprofit industry association, took these two building blocks and added P2P connectivity on top of the ISO/IEC 18092 standard. Classic RFID and credit card use cases involve an active card reader that queries a passive tag or card, which is a one-way interaction. The NFC forum introduced specifications that allowed more capable devices like smartphones, headphones, routers, home appliances and industrial equipment to initiate or react to NFC queries. This opened a wide range of interaction and connectivity patterns. It also took a lot of work to simplify the exchange of information while minimizing security vulnerabilities. For example, you can tap two phones together to trade contact details using Android Beam but not accidentally swap executable code that may spread a virus.

Smartphone vendors are starting to build some basic application execution capabilities on top of this. In the Google ecosystem, a smart tag might launch a progressive web app running in the browser. Apple recently launched Apple App Clips, in which an Étiquette NFC or QR code can launch apps with basic functionality for things like ordering in a restaurant or unlocking a rental scooter kiosk without downloading a full-blown app. These apps are limited from accessing sensitive data on the phone.