Opinions of industry experts suggest rumors that Apple Inc. will introduce contactless payment enabling near field communication (NFC) technology in its new versions of the iPad and iPhone are more than speculation.
The rumors began with a Jan. 25, 2011, article on Bloomberg.com that cited Richard Doherty, Director of technology assessment and market research consultancy Envisioneering Group, as saying that Apple's near-future plans for its two popular mobile devices included NFC.
Doherty told The Green Sheet he had no inside information from Apple to base his observations on, but that his opinions were influenced by conversations he had with individuals who work at manufacturers that contract with Apple. Doherty stated he could not say definitively what Apple's plans were considering NFC - and that no outside party could - but that his contacts expected NFC-enabled mobile payments to be pushed "over the top this year," with Apple being part of that process.
According to Adil Moussa, Analyst at payments industry consultancy Aite Group LLC, this is the year. "We [Aite] predicted that 2011 is going to be the year where mobile payments is really going to rise, or at least get launched seriously," he said.
And Apple isn't the only company that apparently will soon push NFC-based payments into the mainstream. Telecommunication companies, card brands, banks, as well as mobile device manufacturers have aligned through partnerships and initiated NFC-based strategies to capitalize on the long-touted potential for proximity payments at the POS using smart phones, Moussa said. "The biggest challenge is with the NFC," he added. "It looks like NFC is promising, but I don't know if it's eventually going to be the solution ... that will be picked up by the market."
Todd Ablowitz, President of payments consultancy Double Diamond Group LLC, said, "Everyone is speculating, watching the tea leaves on Apple right now. And they're in a tremendous position to do something disruptive in payments."
Ablowitz based his opinion on the synergy generated between Apple's built-in customer base of approximately 160 million iTunes account holders (who have registered credit cards with the accounts) and Apple's mobile devices that would be used to access those accounts to conduct NFC payments at the POS - a payments ecosystem controlled by Apple.
Among those 160 million iTunes users are the 300,000 application developers who write software for Apple devices, Doherty said.
When an end user downloads an application from Apple's online App Store, the developer of that app gets paid for that download via his or her iTunes account "the same day," he added.
So Apple has "300,000 satisfied professional customers," he said. "Now 300,000 professional customers, that's a pretty good start for an alternative banking system."
The "Bank of Apple," as Doherty called it, is not just an alternative debit system, but a kind of credit network as well.
"That may mean a 15-year-old who can't apply for a credit card might get a positive iTunes store balance just by going to see the movie Tangled," Doherty said. "So Apple is looking at positive credits, not just debit. If even a tiny part of the Apple iTunes store experience is translatable to new forms of commerce, it's actually going to gut traditional banking as we know it."
But if Apple is to become a brick-and-mortar mobile payment network, it will need to create a way for the mobile device to communicate with a retailer's POS terminal or reader, and NFC may be that solution.
Apple has applied for a patent that integrates NFC technology into its mobile devices. The application - which can be accessed at http://images.intomobile.com/wp-content/uploads/2010/04/US20100082784.pdf - includes schematics that show where an "N" logo (for "NFC") might be displayed on the exterior of Apple devices, such as an iPhone.
It is not by accident that Apple would choose to place that logo where it did, Ablowitz said. To conduct a mobile contactless payment at a brick-and-mortar retail location, the mobile device must touch the POS reader.
Ablowitz said it makes sense that Apple would embed the NFC technology directly underneath the "N" logo on the iPhone because that is the device's "sweet spot."
The correlating "sweet spot" on a contactless reader is indicated by a circle with a wave symbol. To initiate a payment, you touch one sweet spot to the other. The patent application shows that "Apple clearly gets that," Ablowitz said.
According to Bloomberg.com, Doherty claimed Apple has created a prototype for a POS terminal for small mom-and-pop businesses. When The Green Sheet contacted Apple for confirmation on that point, Apple spokeswoman Natalie Harrison said the company does not "comment on rumor and speculation."
Given the lack of details, Moussa wondered if the terminal would be "employed via the POSs that already exist or is it going to be a device that they are going to stick in every merchant? Because that just seems completely illogical, extremely costly."
But Ablowitz is not so sure. "Apple's not stupid," he said. "I wouldn't put it past them going down any path," including manufacturing its own readers. "News flash: Apple's a hardware company," he said. "If they want to make a reader, they can make a reader."
Ablowitz pointed out Apple understands "the taxonomy of the point of sale," since Apple is a retailer itself through its Apple Stores, 300 of which exist worldwide, according to the Cupertino, Calif.-based technology company.
However, Ablowitz guessed that Apple would want to somehow take advantage of existing POS systems, if for nothing else but speed of adoption. "For payments you want ubiquity," he said. "The last thing they need is for it to take five years to get rolling. They need to get it rolling much more quickly."
Doherty said it would be easy to enable NFC payments via Apple devices at Apple's own stores and difficult to retrofit the thousands of terminals at big-box giant Wal-Mart Stores Inc. to work with Apple devices.
However, retailers in between those two extremes may represent an attractive opportunity for Apple because, as Doherty noted, a portion of retailers are already comfortable working with more than one terminal vendor.
"If Apple were to secure just 10 percent of retail over the next 12 months, it's a huge change in cashless commerce," he said.
But the caveat is that no one outside the company knows for sure what Apple will do. Maybe it's not a coincidence that Apple filed its NFC-related patent application on April 1, 2010, otherwise known as April Fool's Day.
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