Don't Count Apple Out of NFC or Wireless Payments

On September 12, 2012, Apple Inc. (Nasdaq: AAPL) introduced the iPhone 5. One of the biggest rumors surrounding the device was whether it would have Near Field Communication (NFC) built in. A big reason for the rumor is that Android has supported NFC since the Gingerbread operating system was released, and the first Android NFC-enabled phone was the Samsung Nexus S, which was released in December 2010. So the iPhone is well behind Android phones in this area.

The iPhone 5 will debut with the brand-new iOS 6, which includes Passbook, Apple's new wallet app. This app manages information that might normally be stored in a wallet or purse, such as coupons, store loyalty cards, movie and concert tickets, airline boarding passes, and more. It also supports payments in a limited fashion, such as Starbucks' card that allows payment via barcode. However, NFC was not mentioned in the product launch, so we can only assume that the iPhone 5 will not have it built in.

NFC enables mobile payments simply by touching your mobile phone to a payment terminal. Passbook could be a sign that NFC will come to the iPhone in the future, as it gets people used to using their phone for payments and coupon management. It is still possible that the iPhone 5 contains NFC, and we will see for sure when the teardowns roll in once the device is released. Apple may be waiting until the NFC payment infrastructure is more built out and it has negotiated its share of the payments made via its phones.

Apple is known for tightly controlling transactions made via apps on the iPhone already. Payments could be tied in through iTunes, which already contains a user's credit card information. Apple owns numerous patents involving NFC and payments or exchanges of data. Some have argued that, because the iPhone 5 has a metal back, it can't have NFC in it, because the metal would block the signal. However, Apple has already been issued a patent outlining different ways to integrate the NFC antenna into devices that are built with conductive materials, such as the aluminum cases for the iPhone 5 and the MacBook Air. So it's possible it has devised a way to include it in the iPhone 5.

Another possibility is that Apple will support payments made via Bluetooth 4.0. Bluetooth 4.0 includes Bluetooth LE (low energy) and has already been shipping in the iPhone 4S and other Apple devices. With iOS 6, data can be sent and received in the background. Bluetooth 4.0 will also enable "roaming payments" that are not tied to a cash register stand; it is similar to the Apple store, where you can pay any employee who can process your payment on an iPad wherever you are in the store.

Bluetooth LE is being targeted at many of the same applications thta NFC is being aimed at. BLE has a range of around 50 meters and takes less than 3ms to set up, which is much faster than NFC. It consumes very little power; Bluetooth LE only needs a coin-cell battery for more than a year's worth of power. BLE is a new standard and not in use in many products yet, so it remains to be seen if mobile payments will be secure using it.

NFC is very good at "tap to act" applications. Adoption of NFC in the iPhone 5 would have all but secured NFC as the gold standard in mobile payments. Now the future is not as clear. Perhaps Apple still has NFC in its plans for the future, or possibly it has bigger plans for mobile payments that require a more dynamic range that Bluetooth LE can provide. Semico Research Corp. is about to release a report on NFC and the future of mobile payments. Contact Rick Vogelei at rickv@semico.com for more information.