9/01/2014 @ 9:59AM
'Nobody Freaking Cares'? With iPhone 6, Apple Makes NFC A Must-Have Mobile Payments Feature
A tiny chip in the upcoming iPhone 6 will bring Apple’s smartphone the ability to use near-field communication (NFC) tech for the first time. With the cellular, WiFi and Bluetooth radios already included, it might seem redundant to add yet another — this one with a range of just a few inches. Odder still, NFC capability is hardly state of the art; Android phones have been offering it for 3 years already. It feels like a case of Apple coming late to the party, but it’s really much more. Without NFC, the iPhone wouldn’t be able to serve as a very good electronic wallet. And reports from Bloomberg and Re/code suggest Apple is going to make a big push around paying with your phone when it launches its new smartphone next week. If so, it will mark the end of a long, strange trip and perhaps the beginning of the true era of mobile payments.
Nobody freaking cares?
Back in 2011, then COO of Square Keith Rabois couldn’t hide his dislike for the fledgling technology. “I’ve never met a single merchant in the U.S. who says I want this NFC thing,” he said. And at the time, few merchants were equipped to read NFC chips, whether they were built into smartphones or the few credit cards that had them. Google’s Wallet, based around a handful of Android phones and NFC, went nowhere in the payments space. The headline here notes NFC was mocked by the expression “Nobody Freaking Cares” but often the middle word was less polite.
Fast forward to today, however, and the landscape already looks different. As I wrote back in May, the U.S. is preparing for the biggest change in credit cards in decades. The move to chip-based, so-called EMV cards has had merchants across the country replacing their readers. While not every new reader will support NFC, many of them do. And as merchants transition away from accepting the old school credit-card swipe, you’re likely to find that inserting your card is a small but real annoyance.
Smartphones go from being the inconvenient way to pay to an easier one once you can just tap them on the terminal. Credit cards with NFC chips, like Mastercard PayPass are similar, but few merchants are issuing that type of card. And, amazingly, one Chase card I have went from being NFC-enabled in its pre-EMV chip form to losing the NFC when they recently mailed me the EMV-equipped card. It’s this kind of customer unfriendly behavior that gives Apple and Google the opening they need.
Waiting such a long time
For its part, Apple didn’t follow Google into the e-wallet market back in 2011 for a lot of reasons. First, it saw the lack of merchant support for the enabling technologies as a roadblock it couldn’t plow through. Google hoped through sheer force of will it would be able to, but Apple picks its fights differently. And the time wasn’t yet ripe. Second, there was the issue of critical mass. Back then, Apple had perhaps 300 million credit cards on file thanks to iTunes/AppStore accounts. That number was more than Amazon or Paypal, according to Business Insider, but not by much. Today, Apple is believed to have more than 800 million credit cards on file — more than twice what Amazon and Paypal have combined. The ability to enable a digital wallet with existing credit information removes another point of friction for customers.
Third, back then the only way Apple had to secure your e-wallet was some sort of passcode lock. It knew from experience that most people were selecting codes like 1-2-3-4 and 2-5-8-0 — if they used one at all. That kind of “security” would doubtless have led to enough breeched wallets that the customer experience wouldn’t have been very good. With the advent of TouchID in the iPhone 5s, however, security can literally be a fingertip away. It’s all-but certain that the only way to use your Apple “iWallet,” or whatever it’s dubbed, will be via TouchID. If you phone is stolen, the thief will have essentially no ability to compound your misery by using your money too.
Fourth, there is just the matter of timing. For whatever reasons, Apple didn’t believe people were ready to pay that way back in 2011. (Google learned Apple was mostly right.) Today, nearly 15% of Starbucks customers pay with their phones and far more use them for mobile banking of one type or another. Trips to the ATM to deposit checks have moved to iOS and Android for many.
A perfect storm
What you wind up with then, is a confluence of: technology proliferation among merchants and phone owners, a greater chance for consumer acceptance, and a moment where paying by cards is about to become just a bit more annoying. Throw in another major factor — the omnipresence of the smartphone — and it’s easy to understand, “Why now?” Consider that the majority of Americans not only own smartphones, they are perpetually using them for something. When paying with a phone was proposed initially, many questioned the relevance: “I still need to carry my wallet, why is this better?” “Pulling out a card and swiping is easy enough.”
But look at how things have changed. A startup called Coin has been overwhelmed by interest in its magic credit-card that lets you store multiple cards in just a single device. The utility of not having to carry a card for payment and loyalty has been demonstrated by Starbucks and others. Apple’s Passbook functionality in iOS has begun replacing physical tickets and boarding passes for millions. Instead of pointing out we still need wallets, I find myself asking, “Why hasn’t the government figured out a way to let me carry an unhackable, unspoofable digital driver’s license on my phone?” Then I could skip the wallet altogether and just have the phone.
The Luddites here will quickly point out that your phone relies on a battery and once that’s dead, your wallet goes with it. But the reality is most of the time you don’t literally run out of power. There is also reason to hope the next iPhone will be much better in this regard.
Nice feature, Charlie
The toy surprise inside this box of iPhone Crackerjack, though, is that NFC is about more than just payments. Many products use it to simplify connections between peripherals and smartphones, like the Sony DSC-QX100. Anyone who has suffered through an annoying Bluetooth pairing will appreciate the first time they get to pair with an NFC-enabled device and it happens like magic.
NFC also is used by various transit payment systems, like the Clipper Card here in the S.F. Bay Area. While there is no evidence Apple is ready to announce partnerships with transit agencies, the possibility to replace yet more of your cards is on the horizon. Many hotels are going to smartphone-based keys as well. And while there are ways of implementing those using other technologies like Bluetooth and WiFi, having NFC provides yet another option. Cnet was pretty excited about NFC 2 years ago, and you can click through to see why. Suffice it to say, having the technology on iPhone will be good for NFC generally, which should have spillover benefits to Android users. And all the work done to date can finally begin benefitting Apple’s users too.
But the linchpin for all this is the chance for Apple to take a big step forward in the e-wallet space. If Bloomberg and Re/code got it right, Apple will have deals in place with American Express, Visa and Mastercard to announce. It recently began allowing Bitcoin apps back into the AppStore. It offers a way to add money to your iTunes account by walking into an Apple store. The company has all the pieces set up but one — that tiny NFC chip. And it’s about to fall into place.