'Nobody Freaking Cares'? With iPhone 6, Apple Makes NFC A Must-Have Mobile Payments Feature
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.
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