Skipping NFC in the iPhone 5 will cost Apple dearly

Skipping NFC in the iPhone 5 will cost Apple dearly

Summary: The smartphone is the new wallet and Apple's 'go slow' philosophy on mobile commerce will cause it to miss out on a huge mobile payday. Why would Apple leave so much money on the table?

TOPICS: Apple, Hardware, iPhone
Skipping NFC in the iPhone 5 could cost Apple dearly - Jason O'Grady

While buying school supplies at Staples for my daughter today the new, high-resolution screen on the point of sale terminal caught my attention. But it wasn't the screen, it was the huge NFC receiver at the top of the unit (like the one pictured) that got me thinking.

I'm a little stunned at the recent rumor that Apple may have omitted Near Field Communication (NFC) hardware from the iPhone 5. 

Leaked photos of purported iPhone 5 parts show a mysterious square chip originally believed to be an NFC chip. Yesterday AnandTech threw water on that theory speculating that the iPhone 5 won't support NFC because its unibody metal back case will seriously degrade performance.

Although its still purely theoritical at this point (we won't really know until the September 12 announcement), let's assume that the rumors are true and examine why Apple might omit an NFC chip from the i5.

First, I have to say that Apple would be foolish to omit NFC from its golden goose iPhone which produces more revenue than all of Microsoft. NFC is the key to mobile payments and the smartphone can (and will) replace the wallet. It's just a matter of time.

Wallets are a classic example of analog technology and are easily replaced by something digital. They're big, bulky, inefficient, inconvenient and a security risk. Wallets are a pain in the ass and I've been looking for ways to replace mine for as long as I've had a smartphone. If forced to choose, I'd chose my iPhone over my wallet every time -- as I suspect most people would.

(For more on digital wallet replacements read my reviews of CardStarBookBook for iPhone and Geode.)

Here are some data on the recent trends in mobile payments/m-commerce, for the unconvinced:

  1. Worldwide mobile payments will surpass $170 billion in 2012 (up 61.9 percent over 2011) according to Gartner 
  2. Mobile payment are expected to exceed $600 billion by 2016 (Gartner)
  3. Google Wallet is now cloud-based and can be used with multiple credit and debit cards
  4. Starbucks has partnered with Square to facilitate direct smartphone payments
  5. PayPal is now accepted at 16 national merchants, including over 3,000 Home Depot, Abercrombie & Fitch,  Barnes & Noble, and Office Depot locations
  6. Discover has agreed to process payments for PayPal
  7. Retailers love cashless payments because consumers spend more

Granted, NFC is nowhere near critical mass, but Apple has the power to make it mainstream. Apple already has over 400 million active credit card accounts on file and it would be logical to link them to a slick mobile payment system tied to the iPhone.

It would work like direct mobile billing, which allows you charge a payment to your mobile account which then appears on your monthly carrier bill. Apple could do something similar with direct iTunes billing allowing customers to charge anything from gas to groceries to the credit card on file in their iTunes account. The PassBook app in iOS 6 would be the logical interface to complete these transactions netting Apple a tidy commission from every sale.

Two potential alternatives to NFC include Bluetooth LE (low-energy) and QR code based payment tokens, but they're not as fast and convenient as NFC.

Apple has at least six patents related to mobile payments but has indicated that it plans to move slowly on mobile payments. Apple likes to let their competitors do their market research for them, according to Piper Jaffray analyst Gene Munster.

The problem is that doing so leaves a lot of money on the table. Why would Apple intentionally avoid such a lucrative business when it already has 250 million iPhones in people's pockets and 400 million credit cards on file? Color me confused.

Omiting NFC hardware in the iPhone 5 could be fatal mistake for Apple. It would set it back another year behind Android devices that already contain NFC hardware and severly cripple Apple's promising PassBook app in iOS 6.

But there's hope yet, according to Mike Wehner writing for Yahoo News the iPhone 5 will "undoubtedly" feature NFC technology. I guess there's still hope after all. 

What's your take on NFC in the iPhone 5?

Topics: Apple, Hardware, iPhone

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  • The biggest problem...

    is that you need to have your phone with you.

    My wallet lives in my pocket and when I go out, it normally there - going to the gym is probably the only exception.

    If I go shopping etc. I usually don't bother taking my phone with me.

    The other problem, here in Germany, is that even credit cards are still not accepted in most establishments. It is slowly changing, but most people still pay with cash or with debit card.

    Cash is waterproof, if you get caught in a downpoor, coins and notes still work, you smartphone probably not. When I last went back to England, I got caught in a storm on the way to the train station, my travel bag was soaked through in seconds. Luckily I had taken the battery out of my smartphone, before I left the hotel. The phone was dry enough to put the battery back in, by the time I landed back in Germany. The coins, notes and credit cards in my pocket still worked without any problems.
    • unless you walk

      People who have to drive to get anywhere always have their wallet with them.
      But if you walk to your destination (if you live in NYC for instance), chances are all you have with you is your phone and your keys.
    • No credit cards?

      "The other problem, here in Germany, is that even credit cards are still not accepted in most establishments. It is slowly changing, but most people still pay with cash or with debit card."

      That's pretty fucked up.
      Cylon Centurion
      • Nice...

        Highly intelligent comment...not.
      • Nice...

        Highly true comment...YES
        Cylon Centurion
        • Even in Malta...

          We still have a lot of 'mobile vendors' here in Malta, who do not take plastic... small town shops that refuse the extra cost of running a card machine...

          ...and how about buying a coke and a hot-dog with credit card? Are you nuts? Like you said. Pretty fucked up comment Centurion...
          • Not my fault

            You live in the ass_hole of the world.
            Cylon Centurion
          • Rude

            There is no need to swear at others who do not do what you do
      • no credit cards

        ditto here in South carolina the sh!+ can of america. there are plenty of places that don't take plastic of any kind, others that only take debit and cash, even with visa giving away mobile card readers that connect to cell networks to process the charges.

        Except for Exxon speedpass, I have not seen ANY NFC readers in south carolina.
        • SC guy here too

          Totally agree. It will be 2-3 years easy before NFC becomes used to any degree. I've seen only a few, Speedpass has been around for I bet 10 years or longer and it just hasn't been adopted to other gas stations or any other business. Apple will add a NFC chip only when it sees it becoming more accepted and not until then. And... when Apple adds this feature, you will see it embraced faster and cause businesses to get on board with it. Until then..
      • Why?

        It is considered bad form and is an embarassement to have debt. If you don't have the cash, you don't buy it...
        • Duh!

          That's why people have DEBITCARDS!!!!! Who in their right mind wants to physically carry all their money around with them.
    • I am the opposite

      Since I am paying all that money to have a smartphone, I use it for all my scheduling and note-taking needs. I would quicker leave the house without my wallet than my phone.
      • License

        Your license and health care card among other things are not on your phone. I could care less about NFC. I also usually pay cash so that would not be something that would interest me. No credit cards or debit cards after paying off my credit card debt and when I had a debit card my account was hacked, so no thanks.
    • Country towns,

      Always have shops that don't have credit card machine's, mainly coffee shops and fast food outlets not belonging to a large chain. Costs money to have and run them, if your turn over is not large enough it's just an extra cost.
      Not to mention weekend markets run buy charities like APEX and LION's club. I think some people refuse to see the big picture.
    • Without your phone ??

      OMG, I can only assume you are exaggerating to make a point. Who doesn't have their phone with them when they shop. OK, if you don't like mobile payments etc. no worries, just say that. But to say the issue is that people don't have their phone with them is to deny the reality. Go to a mall in Germany, Asia, USA, Mexico and find more than a few people under 50 years old that do not have their phone with them. I am fine with people that don't want digital money, but to talk about waterproof cash is and not having phones is preposterous. Let's keep mobile money discussions based in reality or at least about people under 70 years old. Thanks :-)
      • Reality

        I am way, way under 70 and that's insulting just because you carry a phone everywhere you go and have credit card debt, there are those of us who don't. I actually have money that I use, I don't deal in credit and credit cards any longer. Who wants that debt?
        • What debt?

          Just because you pay with credit doesn't mean there's debt inherently associated with credit use. You simply pay the bill each month and don't charge more than you can pay. No debt. Plus, you get an electronic record of what you've spent, and where. My main card gives me air miles for every dollar I charge. It's money I'm going to spend anyway, so bonus if I get air miles along the way. This is a no-brainer.
          So far as NFC goes, until it's so ubiquitous I don't HAVE to carry my wallet, I don't really care about it as a phone function. Is using it easier than swiping a card? No. So what's the impetus for interest? Security? When people really start using it, criminals will start targeting it.
          • ...and I am not an Apple user...

            I am a happy Android user. I'm not making excuses for Apple. I understand why they aren't tripping over themselves to include the feature. I could use it, but don't.
          • seriously?

            It's already ubiquitous in Japan so the least you could do is furnish some facts relating to how bad their experience of it is.