iPhone 5: Apple, NFC, iTunes payments and you

By Jonny Evans

There's been controversy this week: will Apple's [AAPL] next iPhone support Near Field Communications (NFC) technology, or not? Will it offer payments systems support, or not? Apple has apparently told carriers NFC isn't ready yet, but market chatter suggests plans are advanced. What's going on? Here's how all the conflicting speculations can work together..

NFC, the Apple way

Short primer: NFC can be used to identify objects. You can use it for stock control, ticketing systems and mobile payments. Such solutions depend on two elements -- that devices are equipped with NFC chips, and that devices capable of reading those chips are widely available.

NFC is based on inductive-coupling, where loosely coupled inductive circuits share power and data over a distance of a few centimeters. NFC devices share the basic technology with proximity RFID tags and contactless smartcards, but with more features.

I've written a lot on this topic -- indeed, NFC-based ticketing and other payment systems have been one of the hot hopes for the future Apple smartphone. Support for NFC had been widely expected to appear in the iPad 2. Google already offers built-in NFC support inside Android. Surely Apple can't be far behind?

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

Apple falls behind?

Surprise -- Apple is behind: A few days ago UK newspaper The Independent told us not to expect built-in NFC support for "Wave and Pay" systems within the iPhone 5. That's because Apple felt "that there was no clear standard across the entire industry".

Read carefully and the report confirms Apple is exploring the potential of such technologies, but that systems based on these would have to wait for next year's iPhone 6.

Meanwhile, Apple is developing its own concept for payment systems, based (as I've written before) on its iTunes system. That's why Apple CEO Steve Jobs took pains to let us know iTunes now has the credit cards of 200 million customers on file. This system isn't expected until next year, The Independent said.

That's not what Forbes' Elizabeth Woyke tells us:

Apple in the lead?

"From what I hear, it is possible the iPhone 5 will include NFC. An entrepreneur who is working on a top-secret NFC product told me today that he believes the iPhone 5 will have NFC and cited a friend who works at Apple as a reliable source for the information."

Woyke's source also claims NFC reader manufacturers are expecting NFC support in the iPhone, and are preparing (or is that, hoping?) for NFC to become prime time this summer.

Apple has a team dedicated to developing mobile commerce solutions, led by NFC expert, Benjamin Vigier. Plans seem fairly advanced, or did in January, when Richard Doherty, of Envisioneering Group claimed inside Apple sources had tipped him off to expect NFC facilities in the next-gen iPhone.

Where's the ecosystem?

Doherty also predicted Apple might revamp iTunes to hold not only users' credit-card account information but also loyalty credits and points.

Juniper Research senior analyst Howard Wilcox told me, "NFC -- the prime use for it is in high traffic locations for relatively low value transactions -- mass transit or transport is a prime candidate. Having that technology integrated into your phone would make life easier for people," he says.

That's all good, but seeding the market with NFC-equipped handsets is only half the battle. You also need compatible NFC scanning devices to receive payments in stores or to recognize devices on public transport and so on.

"We are reaching a tipping point," says Stuart Neal, head of payment acceptance at Barclaycard in a November statement. "The number of terminals has gone from 25,000 at the beginning of 2010, to 42,500 today."

That's still nowhere near enough to confidently launch and promise an NFC-based payment system for the consumer market.

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Simple by design

If Apple wants to say your iPhone is your wallet with a simple consumer message that promises something which actually works, it needs to develop a strategy to both create and support the market.

Juniper's Wilcox believes that Apple and Google getting involved in the industry could spur such industry development.

Solutions such as those from Square and others could conceivably underpin some merchants in their attempts to accept NFC-based payments from your iPhone.

Work continues. There's clearly a strong connection between the NFC standards body, the NFC Forum, and Silicon Valley. The NFC Forum held a developer session in San Francisco in November 2010. In December it launched a Certification Program to assess products for their compliance with NFC Forum specifications.

"Only companies whose products pass certification testing will be able to display the N-Mark, the universal symbol for NFC, on their devices. The N-Mark tells consumers where to touch to initiate NFC services on a device. The N-Mark also lets consumers know where to touch, for example, a poster, sign, badge, or label to trigger NFC services," the NFC Forum says.

Standardizing standards

However, at present a single standard doesn't exist. Payments Source reflects that this, "Reinforces a major hurdle for the technology: that a lack of common technical guidelines is likely to hinder its adoption for the foreseeable future."

Richard Crone of payments consultancy Crone Consulting observes that the different wave and pay payment systems were developed by competing firms all struggling to protect their "existing payment franchise".

Payments Source also claims that Apple has been in talks with Think Computer on collaborating on mobile payment technology, though no direct link exists. American Banker also claims Apple will not introduce NFC in iPhone 5.

This is disappointing, but it needn't be.

The lack of NFC support doesn't mean Apple is not planning a mobile payment solution for iPhone. Take a look at Starbucks' for an example of an App-based payment system which already works. Starbucks' App uses software from mobile banking vendor mFoundry.

Create a need to feed it

In order to make an NFC solution work, Apple must develop an ecosystem of merchants to underpin it. One way to achieve this might be to support App-based mobile payment solutions with iTunes acting as the actual payment exchange engine.

This would allow interested firms -- hopefully including the likes of mass transit authorities, ticketing agencies, supermarkets and others -- to field payment-taking systems within their own Apps for iPhone and iPad.

This would create the first stage interest among consumers and merchants that Apple needs in order to successfully field an NFC-based payment system. This would also buy the nascent NFC industry some time to reach and agree on a common standard.

Should Apple elect to delay built-in NFC support until iPhone 6 next year, it will be offering a more secure and efficient iPhone as Wallet solution to an audience already used to and familiar with use of their devices in payment situations. Indeed, it may succeed in developing its own mobile payment ecosystem that doesn't require NFC.

This strategic approach could work. However, there's no smoke without fire, and I'd hazard a guess that Apple's work on an NFC-based iPhone has reached an advanced stage, and any decision not to implement such a feature in the next release may have been made relatively recently.

It's not just about payments, anyway

We can surmise that Google is interested in NFC tech for better targeted ads. (Ads being its only revenue stream in Android).

We can also surmise Apple has a wider pejorative than simply to underpin financial transactions.

Mohammad Khan, president of Vivotech, this week told PaymentSource that suitable NFC payment standards already exist.

The stumbling block is in how to tie location data to NFC for the development of loyalty applications, things like reward cards and special offers. Khan's company has been developing its own standard for such uses.

Interesting then to note that Vivotech has been much-discussed as a potential Apple takeover target.

In other words, I believe Apple's plans for NFC are advanced, but that the company may be developing an alternative strategy for mobile payments in order to help create the infrastructure such solutions require.

Creating the post-PC future, one bit at a time

Another part of Apple's attempt will be to develop ever more advanced implementations of MobileMe. I've talked before how this means eventually you'll be able to log into your account using any Mac and have access to all your applications and user data, including emails and so on.

In future I also predict you will be able to access your 'Mac' from any Apple mobile device, at least to some extent. The future of mobile computing is in devices such as the iPad, iPhone or MacBook Air.

All these discussions are connected. It will be interesting to see how Apple brings them to market, and how they are actually implemented.

Signing off, below is the world's first music video shot on an iPad. Also we're hearing conflicting reports claiming the Apple may -- or may not -- face problems sourcing components for the iPad 2, which is meant to ship in many international markets on March 25.

What do you think? Will Apple skip NFC to develop its own solutions for mobile payments in the Post PC age? Let me know in comments below. I'd also very much like to invite you to follow me on Twitter so I can let you know when I post new reports here first on Computerworld.

Enjoy the weekend.    

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