NFC: locking iPhone users in
Among all the leaks, speculations, and rumors we’ve heard about iPhone 6, the most interesting, in my humble opinion, is that Apple appears to be, at long last, folding Near Field Communication (NFC) technology into its newest gadgets — iPhone 6 and its new iWatch. According to the Financial Times, the word on the street is that NXP Semiconductors has won that NFC design-in slot.
However, the fascinating aspect of NFC in the iPhone 6 is not so much the technology itself. We know how NFC works — both for mobile payment and its simple pairing ability. In fact, more forward-looking companies, including Korean giant Samsung, integrated NFC in their smartphones and peripherals years ago. But curiously, Apple remained a staunch holdout.
The bigger game-changer, in my mind, which the introduction of iPhone 6 is expected to bring, is a breakthrough Apple has negotiated with mobile carriers, banks, and credit card companies.
Apple will be telling financial institutions — for the first time, for a tech company — what it wants in the its own mobile wallet business model, instead of getting ignored or pushed around by banks and credit mills whose business is to preserve their own archaic systems and reap the small margins they set up for every transaction fee.
Many software and hardware companies in the high-tech industry have dreamed of mobile wallets for a long time — maybe as long as two decades.
Bill Gates talked about it. Companies like Nokia, Philips Semiconductors (before it became NXP Semiconductors), and Sony subsequently formed the NFC Forum to promote NFC as the key to enable mobile payments.
I even remember covering, at the Cartes IT and security exhibit here back in 2004, Nokia’s new NFC-capable mobile handset, a triband camera phone with an NFC "shell" attached. The NFC shell contained Philips Semiconductors’ NFC chip, interfacing with NFC radio while directly communicating with a baseband processor in the Nokia handset. Well, that was before the smartphone was invented.
Developing NFC technology to enable mobile wallets was the easy part. The tech community created the standard. Semiconductor companies are pumping out NFC chips, and OEMs are integrating them.
Breaking down the wall
The hardest part for tech companies to bring the mobile wallet to Main Street has always been breaking down the brick wall built by banks, credit companies, and mobile operators that cling like barnacles to their own, well-protected businesses.
How and why mobile commerce hasn’t happened the way some leading electronics companies originally envisioned is well chronicled in a book, Mobile Commerce 2.0 by my former colleague Majeed Ahmad. (Ahmad was once editor in chief at EE Times Asia.) As the book’s subtitle notes, the book is about “Where Payments, Location and Advertising Converge.”
Amhad breaks down the web of interests among mobile operators, which have little incentive to push handset vendors’ mobile wallets (such as Google Wallet, for example). Operators have already built their own wireless payment programs.
The situation is even worse with banks, credit card, companies and retailers. Any handset vendors that want to cut into the mobile payment business need to strike a host of complicated agreements with different players.
Many in the high-tech industry blamed Apple for putting NFC on hold for mainstream applications. Life, however, isn’t that simple, explains Amhad. He points out the huge number of iTune accounts Apple has managed to build up, which in return gave Apple little urgency to jump on the NFC bandwagon.
The book gives a great overview and history of mobile payments, how many in the tech industry underestimated the power of the established business players, and how they made costly mistakes. Amhad offers an in-depth analysis, written simply and clearly, on the intricacies of mobile technology vs. the reality of mobile businesses.
Back to Apple.
With NFC now inside the iPhone 6, industry observers are guessing that Apple has leveraged its estimated 800 million iTune accounts to successfully negotiate with credit card companies, thus somehow carving out a new revenue stream for itself. Details — or even verification — remain unknown at this point.
As far as the speculation goes, the negotiated deal could be in the form of lower rates on payment transactions for iPhone owners. That may allow iPhone owners to charge physical retail items through their iTunes accounts. Or Apple might be simply getting a small cut of every transaction charged through an iPhone (or iWatch).
Either way, many in the industry agree that the move will turn many iPhones into wallets, locking them into Apple’s ecosystem. After all, trading up a smartphone is easy. But trading away a wallet packed with personal ID data and sensitive credit card info — that’s a lot harder.
If Apple manages to join itself at the hip to its iPhone users, this could be one of the biggest wins ever for the Cupertino, Calif., company’s business model.
— Junko Yoshida is Chief International Correspondent at EE Times
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