Apple Inc. boasts that its iPhone “changes everything,” but against the expectations of many bankers, it may not be changing payments–at least, not this year.
The consumer technology juggernaut does not plan to include a Near Field Communication chip for payments in the next iPhone, which is expected this summer. Apple’s trepidation over NFC reinforces a major hurdle for the technology: that a lack of common technical guidelines is likely to hinder its adoption for the foreseeable future.
That does not mean that Apple isn’t interested in mobile payments. To the contrary, many anticipate the company will roll out a mobile payments system that avoids some of the turf wars that are inherent in any NFC-based system.
What it does mean is that any bankers, payment-network executives or other interested parties expecting Apple to help make NFC the mobile-payments standard with its massive base of customers need to reassess their game plan.
There are different technical standards for how to use NFC, which allows for data to be transmitted from one device, such as a phone, to another, such as a point-of-sale terminal, at short distances, says Richard Crone, the chief executive of payments consultancy Crone Consulting LLC in San Carlos, Calif. The technical rules around how an NFC transaction works can differ based on who is enrolling customers and operating the program.
“Most of them were put forth by those trying to protect their existing payment franchise–a single application with a single reader controlled by a” trusted service manager, Crone says. “Apple looks at that closed, restricted market and says, ‘How can we think outside the chip?’ ”
Moreover, “if they can use a technology that doesn’t require NFC, then they’re ahead of the game,” he added.
The Independent, a newspaper based in London, On March 14 reported that Apple would not be including NFC chips in the next version of the iPhone, citing unnamed sources at several large United Kingdom mobile operators. One source said the “lack of a clear standard across the industry” was the main reason Apple is holding off until it releases version six of the phone next year.
Aaron Greenspan, president and chief executive of Think Computer Corp., a Palo Alto, Calif., mobile-payments company, tells PaymentsSource sister publication American Banker that a source at Apple contacted him last month and “made it pretty clear that [NFC] would not be in the iPhone 5.”
Think Computer has had talks with Apple about collaborating on mobile-payments technology but has no direct partnership with the company, Greenspan says. An Apple spokesperson says the company would not comment for this story.
Richard Doherty, a research director at Envisioneering Group in Seaford, N.Y., has said Apple is planning to include NFC technology in future versions of the iPhone and iPad. He now says it is plausible that Apple would hold off on including the technology until a “full ecosystem” is developed.
Doherty says he has spoken with Chinese, Taiwanese and Japanese equipment manufacturers that are developing sleeves that could attach to the iPhone or iPad as well with the expectation that Apple would launch a service in the summer.
“It was always our belief that at the launch of NFC for the iPhone or iPad, Apple would also offer a path for previous device operators to not have to surrender their purchased” products by offering accessories, such as a sleeve, that contains NFC chips, Doherty says.
Besides banks, payment networks and processors, there are also wireless carriers, mobile-device manufacturers, merchants and point-of-sale terminal makers contending for a place in the mobile-payments market.
“The stars need to be in perfect alignment for 14 players at least to pull off NFC payments,” Crone says. “It’s a complex, interdependent ecosystem with a lot of new variables and business models that have yet to be resolved.”
Apple could bypass NFC for another mobile-payments approach, Crone says. If it were to do so, it could sidestep the battle for control over the end users and minimize sharing of revenue from transactions with those other players, he says.
Wireless carriers can exert significant control over which parties can access information within handsets, making it difficult for other parties to go to market without carrier collaboration, Crone adds.
Last year AT&T Inc., T-Mobile USA and Verizon Wireless announced the formation of a joint venture to develop a mobile-payments network called Isis (
At the same time, payment networks are pushing NFC methods that give them and their issuers more control over the customer relationship.
For example, Visa Inc. is offering its partner banks the ability to issue memory cards containing payment credentials (
Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and U.S. Bancorp are either testing the technology or planning to test the technology.
An alternative to NFC that has already shown promise is the digital bar code, which a consumer can present on a smartphone’s screen for a retailer to scan at the point of sale.
Starbucks Corp. recently rolled out its barcode-based mobile payments system to all corporate-owned coffee retail locations after successful pilots that began in late 2009. With the system, Starbucks customers can load funds into a prepaid mobile application on the iPhone, iPod Touch and Research In Motion Ltd.’s BlackBerry devices (
Think Computer’s closed-loop FaceCash system also enables users to generate bar codes that can be presented on a customer’s smartphone or printed (
The company based its system on bar codes because of the lower costs for merchants, Greenspan says.
“We obviously started with the bar codes because they’re easier and they’re cheaper,” Greenspan says. “We can ship out a bar-code scanner for $30.”
“All you have to do is plug it in,” he added. “There’s no new standard to worry about.”
But Mohammad Khan, president of Vivotech, a Santa Clara, Calif.-based company that sells point-of-sale technology to retailers, says establishing standards for NFC payments is not the primary issue, as the four main payment networks already have established standards for their contactless-payment services.
Instead, standards are needed around how to use NFC chips for loyalty applications, such as closed-loop rewards programs and private-label cards that retailers offer, Khan says.
Vivotech has been working on its own standard that merchants can use for such activities that it has been including in its point of sale terminals.
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