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NFC-enabled iPhone 5 to take mobile payments to the next level

January 27, 2011

A consumer makes a contactless payment with an iPhone at the San Francisco Giants' AT&T Park

Multiple reports are adding fuel to the fire of rumors that Apple’s iPhone 5 will be embedded with a near field communication chip, a move that could shoot mobile payments into the stratosphere.

The entire mobile payments ecosystem has been ready to go and waiting for a major event to happen to jolt it into the mainstream. With more than 750,000 contactless payments terminals already installed at retailers’ point-of-sale in the United States alone, the only missing component has been an NFC-enabled phone in consumers’ hands.

“This is going to jumpstart the mobile payments space—Apple can do this,” said David Eads, Atlanta-based director of product marketing at Kony Solutions. “It has 160 million iTunes accounts that all have payments information associated with them, which is a huge market that is ready to go.

“By embedding NFC chips in iPhones, Apple may jolt the mobile payments market into life, but there is a lot of competition in the space—it is potentially a $6.5 trillion market,” he said. “Carriers are fighting for a piece of this market, the Google Nexus S is NFC-enabled, banks and card associations are competing and retailers will also be competing to get consumers to use their mobile wallet.

“This will create a huge round of innovation, and innovation is great, but it will also create incompatibility and fragmentation.”

While important, the NFC chips are just one piece of the puzzle.

Mr. Eads expects a sea of mobile wallets from all kinds of providers, as well as a deluge of applications that leverage NFC to do interesting things not related to payments such as super-local advertising and couponing, device configuration and automated check-in.

There is potentially a mountain of interoperabilty issues for the ecosystem to deal with.

Each phone and each wallet may operate differently from an application-compatibility perspective.

Mr. Eads said that Apple is likely to take a cut of every payment made through their service, possibly as much as 30 percent of the transaction fee, which typically ranges between 1 percent to 3 percent of the transaction.

This new huge revenue stream is not baked into Apple’s stock valuation, per Mr. Eads.

“NFC is the reason why mobile banking has been so hot for the past few years—banks have been innovators because they saw this mobile payments opportunity,” Mr. Eads said. “Five years ago the argument was whether it would be carriers or banks that would own the customer and get all of this revenue from mobile payments, but now it appears that Apple and Google may be the winners here, Apple especially.

“This would represent a significant new revenue stream for Apple—it keeps 30 percent of App Store revenue, and it would probably do something similar,” he said.

“Apple would keep 30 percent of the payments fee for acquiring the customer and making an electronic transaction, which would amount to huge, huge revenue figures.”

Mobile payments reaching the mass market?
Aaron McPherson, practice director of financial insights at IDC, Boston, said in a blog post that Apple has huge obstacles to overcome to make this work.  

Mr. McPherson said that he would be much more excited about this news if it came in the form of a larger alliance of banks, carriers, terminal manufacturers, retailers and device manufacturers to support an open NFC standard, using existing payment networks as the platform.

That is probably not going to happen in the next year, so Mr. McPherson does not think this will move the market much.

On the other hand, if Apple does use an open implementation standard, that could really be important, per IDC.

Many analysts agree that if Apple did integrate NFC, it would be a boost for the technology and help to popularize mobile payments.

“It should be remembered, though, that smartphones are still in the minority amongst all phones out there, so SMS is the key to mass-market adoption, and it will take time to build up a large user base,” said Howard Wilcox, senior analyst at Juniper Research, Reading, England. “Also, any mobile payment development will face issues of convincing users of the security aspect – no matter how secure the transaction really is – it is a case of perception.

“After all, what is less secure than a regular wallet, which your cards can fall out of?!” he said. “Depending on the country, there are differing levels of contactless payments acceptance at merchant locations, so in the early days, it may be difficult to actually use NFC-enabled devices.

“Nonetheless, if such an announcement happened, it would give a boost to NFC in the market and go along with high-profile developments from players such as Google, Nokia, Orange and Isis recently.”

Final Take
Dan Butcher, associate editor, Mobile Commerce Daily

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Dan Butcher is associate editor on Mobile Commerce Daily and Mobile Marketer. Reach him at

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