Apple Inc.'s failure to include a mobile-payments play in its latest batch of new technology has reignited the discussion of whether Near Field Communication's role in developing a mobile-payments ecosystem has been overhyped.
Despite breathless anticipation of an Apple iPhone in the works that would include NFC and potentially revolutionize the way consumers pay because of Apple's market influence, observers are beginning lose hope of seeing such a scenario.
And minus the commitment of a titan such as Apple, NFC's very prospects to transform the payments industry are fading a bit, as a growing number of players explore simpler, cloud-based mobile-payment options, observers say.
"NFC still has its followers and proponents, but some of the edge has been taken off it within the last several months as things evolved," Glenn Fodor, an equity analyst with Morgan Stanley, tells PaymentsSource. "You look at the other options coming out, such as two-dimensional bar codes that run Starbucks' apps, and you see a whole concept of cloud-based authorization that could potentially bypass NFC entirely."
Indeed, Apple is leveraging a lower-tech approach to a mobile wallet with Passbook, an app it announced June 11 at its Worldwide Developers Conference in San Francisco. Passbook enables users to store retailer loyalty cards, tickets and other passes on Apple mobile devices and use via a barcode scanned at the point of sale or turnstile (see story).
While Passbook is not directly tied to payments–yet–analysts say Apple's foray into a mobile wallet is a significant move that underscores the power of lower-tech apps such as those Starbucks Corp. has devised to support payments. And that could be how Apple eventually builds a ramp to mobile payments.
"Apple doesn't have person-to-person payments yet, but we've seen with other initiatives that two-dimensional barcodes can work as payment tokens,” Aaron McPherson, practice director for financial services for IDC Financial Insights, tells PaymentsSource. “And I think somewhere down the road we are going to see those evolve into payments, through gift cards and coupons, to start."
McPherson is skeptical about whether Apple will venture directly into NFC with iPhones.
"I think it's complicated with Apple because directly entering NFC with iPhones could put them at war with the telcos, who have already signaled through Isis that they want to control the secure element and what goes through it," McPherson says.
No one is counting out the possibility that Apple may finally come out with an NFC-enabled iPhone. But as other mobile-payment concepts gain momentum, the moment may have passed when Apple could have dramatically boosted NFC's early fortunes, some suggest.
"It is clear Apple has done a great deal of thinking about NFC, given all their NFC patents," Beth Robertson, a senior analyst with Javelin Strategy & Research, tells PaymentsSource. "The NFC patents they have on file cover a wealth of different applications for NFC and not just mobile payments." (see story)
And payments is not Apple's core business. "Apple would have to ramp up in terms of staffing if they wanted to get into payments, as it is a very complex industry with unique regulations, and it's not their area," Robertson says. "It would be it logical for Apple to instead make its play as an enabler and partner in mobile payments."
The case for NFC is still strong, Robertson notes. "There are multiple NFC business models in development, but it has not evolved enough in the U.S. to determine which one will be successful," she says.
The fact that mandates from Visa Inc. and MasterCard Worldwide are pushing merchants and issuers to adopt more-secure EMV chip card technology by 2015 still weighs in NFC's favor "because NFC is very compatible with EMV, which is used in other countries and would provide a platform for global interoperability," Robertson says.
But NFC is not necessary for mobile payments to work, proven by the success of QR and barcode options with Starbucks and other merchants, she says.
The upshot is that "a shakeout" is ahead for emerging mobile payments and NFC-based efforts, Fodor says.
"It's still very early, and when I think about NFC or mobile payments in general, I think there will be pockets of opportunity or initiatives. And it's impossible to get a read now on what certain major technology players will ultimately do," he says. "NFC is not dead; people are actively pushing forward on it in fits and starts. But over the last year, the industry is coming to the realization that it's not the be-all or end-all of how mobile payments will evolve."
And Apple may not even play as crucial a role in mobile payments as some forecast, McPherson says.
"Android is already bigger than Apple," he says. "Other technology companies and phone manufacturers like Nokia are very powerful in emerging markets. Apple typically doesn't do well outside its walled garden, so there is no certainty that it will have the dominant phone in mobile payments."
There may still be too much hype in mobile payments and emerging mobile wallets to handicap winners, Fodor contends.
"Most of the chatter now in mobile payments surrounds everyone's perception of what will be the ultimate solution for mobile payment and whether or not that will be NFC remains to be seen," he says.
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