Near Field Communication (NFC) is steadily making headway in the U.S. for sharing data and music among smartphones, but the technology faces years of slow growth as a replacement for physical wallets.
NFC will take a minimum of three more years to grab hold as a technology that enables so-called mobile wallets as a replacement for credit cards and cash in the U.S., according to a consensus of five analysts. And by "grab hold," these analysts mean being used by only 10% of mobile phone users to make digital purchases.
Gartner analyst Avivah Litan predicts that NFC payments will hit the 10% threshold in 2015, compared to the process of SMS (texting) payments that is expected to represent 50% of mobile payment volume globally in that same year. "We're still on the edge when it comes to NFC innovation," Litan says. "It will take a decade before it's mainstream across the globe."
(For an explanation of how NFC works, a short history of the technology and some information about alternatives in the U.S., see "A short history of NFC.")
iPhone 5 and the decision to omit NFC
Dozens of new smartphones that run Android, BlackBerry and Windows, and that include an NFC chip, launched last year. But Apple notably did not put NFC in its new iPhone 5 when the phone launched in September. That move "surely had a significant detrimental impact on industry adoption of NFC," Litan says, given Apple's influence in the mobile market.
Apple justified the move by saying that consumers already could use its Passbook app, which shows barcodes on the display, instead of NFC. The barcodes contain information that can be scanned by optical readers to let users board planes and redeem movie tickets -- tasks that Apple notes are "the kinds of things consumers need today."
In other words, Apple implies, customers don't need or want an NFC smartphone for making credit card transactions -- yet. Barcode scanning is used by Starbucks nationwide -- and has been more recently adopted by Dunkin' Donuts -- to subtract dollars from a virtual card on a smartphone that was previously loaded with cash.
Starbucks has described its barcode approach as a success; as of December 2011, the company reported over 26 million mobile payments. The company cites the relative shortage of NFC-ready smartphones and NFC terminals compared with the abundance of optical scanners on terminals. Starbucks even integrates its digital payment cards with Apple's Passbook and invested $25 million in Square, a different smartphone payment application.
Some have criticized Apple for omitting NFC from the iPhone 5, which has led to a widespread reassessment of NFC's immediate future, especially in the U.S.
Still, nearly all analysts predict Apple will eventually include NFC in the iPhone 6 or beyond, noting that Apple is steadily acquiring technologies to do so, including a fingerprint and NFC identity recognition system from Authentec.