iPhone 5 Could Be Game-Changer For Mobile Payments

Some developers are betting the next Apple iPhone will have NFC capability and pave the way for mobile payment technology to finally take off.
From The Cool To The Ridiculous: CES On Display
From The Cool To The Ridiculous: CES On Display
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An app developer showcasing wares at MacWorld told 9to5mac that Apple's iOS engineers are "heavy into NFC." The developer also noted that he's so confident in Apple's plans to add near-field communications (NFC) to the next version of the iPhone that he's willing "to bet the app development on it."

In other words, this developer is going to spend money creating apps that will work with an unannounced feature of an unannounced device. That's either incredible confidence or insanity, depending on your point of view.

Were Apple to ship an iPhone with NFC on board, it could pave the way for mobile payments to finally take off.

Mobile payment services have yet to be adopted by a significant number of people in the United States. Financial institutions, mobile network operators, software developers, and smartphone makers are all hard at work on mobile payment services, but none of them has yet hit pay dirt.

[ Get the latest on NFC. Read CES 2012's Big Sleeper: Near Field Communications. ]

For example, Google, Sprint, and Samsung launched the Google Wallet service last summer, which works on just a few devices and only one network in the United States. Verizon Wireless, however, deactivated the NFC functionality of the Galaxy Nexus so that users couldn't take advantage of the system. Instead, AT&T, T-Mobile USA, and Verizon Wireless have all teamed with Visa to create Isis for NFC-based mobile payments. Too bad the joint venture won't even start trialing the technology until much later this year.

Plenty of other players have stuck their finger into the pot, but so far no one jumped in completely. Here's why: everyone wants a cut. All the players involved want a piece of the action. The problem is, there's not that much "action" to spread around.

Think for a moment about all the companies with a vested interest: 1. Phone makers; 2. Retail terminal makers; 3. Retailers; 4. Network operators; 5. Financial institutions, banks, and credit card companies; 6. Software developers; 7. Platform providers (Google, Microsoft); and on and on.

There are only so many ways to cut a dollar before there isn't any of it left, and profits still have to be made somewhere.

What can Apple do? It can bring its significant market power to bear on the entire chain. With annual iPhone sales surpassing 70 million, the company has the influence to bring everyone to the table and work something out. The key will be getting as many retailers signed up as quickly as possible. That will likely start with national chain stores, such as Sears, Home Depot, Target, and the like. Big banks will have to back the system, and it will need to launch nationwide--not only in test markets.

One might argue that Google has just as much power and influence, and yet it can't yet call Google Wallet a success. That's true, but consider Apple's past successes at convincing other businesses to do what it wants them to do (iTunes, iBooks 2, etc). Google Wallet's biggest limitation is that it works with only one wireless network operator in the United States--Apple has distribution agreements with three.

The real reason NFC and mobile payments haven't taken off has nothing to do with the technology and everything to do with the deals being struck with the companies involved. It is possible an NFC-equipped iPhone can help convince the myriad industries involved to hammer things out so that we all benefit.

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Joao-Pierre S. Ruth, Senior Writer