Apple's decision to ignore NFC and mobile payments lets other players get a stronger foothold before the war begins.
To be honest not many pundits expected Apple to add Near Field Communications to the iPhone 5 for short-range wireless interactions, but it seems to be an omission many people are disappointed about. It would fit perfectly with the new Passbook features baked into iOS6, designed to work with e-ticketing systems and loyalty card programs. NFC could also tie in with the iPhone's existing EasyPay mobile payments system, which deducts funds from an iTunes Store account but is currently restricted to Apple retail outlets.
Android hasn't done much with NFC to date, but it's finding its feet as a technology anyway. It's the basis of the payWave and PayPass contactless credit cards introduced by various Australian banks, plus it's used by Melbourne's Myki ticketing system. There are a range of other NFC trials underway around the country. The Commonwealth Bank wasn't prepared to wait for Apple and issued its own NFC-enabled iPhone case to work with its Kaching mobile banking and payments application. Other financial institutions, including several banks and PayPal, have also introduced app-based mobile payment options which don't utilise NFC -- looking to get an early foothold before Apple steps in. Visa also wants a slice of the action and is trialing its V.me digital wallet in the US. Meanwhile Isis is a joint mobile payments venture between Verizon, AT&T and T-Mobile. They're all gearing up for the mobile payments war which is brewing.
Android has lead the way with NFC in smartphones but little has come of it. NFC is supported by many new handsets along with Google Wallet, but you're at the mercy of your region and your telco as to whether they're activated. Meanwhile Microsoft is adding NFC support under Windows Phone 8 and its digital wallet with new handsets such as Nokia's Lumia 920, but not HTC's 8X. It remains to be seen whether Microsoft or the telcos will hold it back in certain markets.
Both Android and Windows Phone 8 seem ready to take a bite out of the NFC market while Apple drags its feet, although there are still hurdles to overcome. The Commonwealth Bank's Kaching app for Android doesn't take advantage of NFC in handsets, because the bank says Android doesn't use the security components of NFC required for secure financial transactions. Westpac's Android NFC trial requires a custom SIM card to securely store banking details rather than simply trusting the handset's hardware and software. This fragmentation, reflective of Android as whole, is one of the key issues holding back the NFC ecosystem.
The fledgling NFC space seems ripe for someone to step in with the killer service which "just works", which is exactly the kind of opportunity Apple loves to pounce on. So why hold off with the iPhone 5? Because the market isn't quite ready and Apple isn't quite ready to exploit it. Apple's style isn't to simply enter new markets as an also-ran (although there is the occasional dud such as Ping). Apple's style is to negotiate deals with the major providers, play hard ball, deliver a slick user experience and then totally dominate the market while retaining control of the end customer. Look at the experience of the music industry, which failed to master the online music model until Apple stepped in and stole its customers away. The movie industry isn't faring much better, while book and newspaper publishers are also feeling the squeeze from Cupertino.
Following the same model, it's possible Apple's long play is to be the iTunes of mobile commerce and financial transactions. But it's going to do it in its own time, on its own terms. Passbook in iOS6, for storing e-vouchers, is a stepping stone. Right now Apple is striking Passbook deals with the major players in the retail, ticketing and transportation sectors, with early partners including Virgin Australia, United Airlines and Amtrak. Major retail and ticketing partners in the US already include the likes of Starbucks, Target and Fandango.
What's surprising is that Apple's hasn't taken the same iron-fisted approach to Passbook as it has to the app store. Passes are not vetted the same way apps are. Nor is Apple demanding a slice of the action or invoking its in-app purchase policy, at least at this point. You do however need an Apple developer account to create Passes, which rely on the JSON data format. You also need to run your own server if you want to issue dynamic passes which can update on the fly. These kinds of technical challenges have spawned a range of Passbook brokers, such as Melbourne's PassRocket, aiming to help small businesses get onboard. Apple will encourage this, at least for now, because initially Passbook is all about critical mass.
It won't happen in the next year or two, but I'd say Apple's end game is to become the iTunes of transactions and perhaps rival PayPal. It would be foolish to rush into that space now and get thumped by PayPal, but Apple will move in phases. First Passbook, perhaps NFC next -- to extend its reach and put the pressure on the major financial players. I'm told by people in the know that the NFC Point of Sale gear deployed in Australian supermarkets can be extended to support more than Visa and Mastercard, but that it would take a well-connected heavy-hitter to make it happen. As a stepping stone you might see Apple strike a "strategic partnership" with one of the big financial players to get a foot in the door, but it would be an uneasy alliance. Just like Google Maps and SkyHook, Apple is your best friend until the day it can survive without you.
Once Passbook has a critical mass of business users, both big and small, Apple will have the clout to eye off the financial space and negotiate with the big players. Apple won't move until it feels it has the upper hand, then it will squeeze them hard and quite possibly demand a slice of the action as it currently does with in-app purchases. Eventually it may try to muscle financial institutions out of the picture, expanding its own EasyPay system in an effort to steal business away from the banks and credit card providers. You'll still need a credit card to top up your iTunes account, but intra-iTunes transactions will start to take their toll as Apple builds its own financial ecosystem similar to PayPal.
Having watched Apple squeeze content providers, the big financial players won't go down without a fight. They're not as arrogant and short-sighted as the music industry. The biggest mistake when fighting Apple is thinking you're too big to lose. This is why the financial players are proactively forging ahead with their own mobile payment systems which are less dependent on Apple. The banks and credit card providers, not to mention the likes of PayPal and even the telcos, want to lock in their profitable customers before they become Apple's profitable customers.
When viewed in this light, Apple's decision to hold off on NFC in the iPhone 5 actually gives competitors an extended window of opportunity to establish themselves before Apple turns its eye on the mobile payments space. Or maybe I'm paranoid and crazy, and Apple is content to simply dish out loyalty cards so you can get your tenth coffee free. I'd say businesses wanting to avoid the fate of the music giants should be looking to engage their customers in the mobile transaction space and establish a strong relationship, before Apple tries to steal them away.
The story iPhone 5 ignores NFC - a stay of execution for some? first appeared on The Sydney Morning Herald.