Apple and Google may both be rethinking NFC, as many high profile mobile payments initiatives, notably PayPal's wide-ranging trials, take a cautious view on the new standard, and others focus on more readily available handset inhabitants, such as SMS or even - as seen at Israeli firm Digimo - QR codes.
Some analysts believe the slow uptake of Google Wallet - which was supposed to turn the Android handset into a wallet and place the search giant firmly at the helm of the m-payments ship – is because the service relies on NFC.
To be fair, this is not about NFC technology but its current lack of scale. Wallet launched with one handset, the Galaxy Nexus, and with a single carrier in one country, Sprint. Verizon, which has its own alternative in the Isis carrier venture, failed to activate the wallet on its own Nexus. A year after launch, Google Wallet still only works with one credit card and bank combination, Citibank MasterCard.
This highlights the fact that an NFC ecosystem does not yet exist. Too few terminals have been installed and too few devices included the chips – fewer than 1% of current phones. And debates are still raging over the business model – who controls the customer relationship, along with elements like security and customer support; how revenues and fees are shared.
Digimo founder Yossi Yarkoni made a good point in a recent interview with CNet: “The question comes down to 'who owns the customer?' Why should Apple or Samsung bother putting NFC in devices if they simply hand over that customer relationship to others?”
Many m-payments and m-banking services in emerging markets, the main growth driver, rely instead on SMS, while PayPal backed away from NFC for its recently announced in-store mobile solution, in favour of an app which just requires users to type in a PIN number. The eBay unit's CEO John Donahoe said on the company's second quarter earnings call that he did not see NFC ever making a big impact because it does not add value for the consumer.
“When is NFC going to be ready? Never,” he said. “I think other technology solutions, like what PayPal is doing where you pay hands-free with a mobile number and PIN, provide compelling consumer experiences that don't require the actual use of an NFC technology.” PayPal spokesman Anuj Nayar told CNet:
“History has shown that unless a new technology saves people time or money, it won't reach mass adoption. NFC is a technology in search of a problem. Tapping a phone against a reader is no faster than swiping a credit card. In fact, it can take longer.”
Another thorn in NFC's side has been slow adoption by major handset players. Six Android smartphones now support the technology, mainly Nexus or LG models. Nokia, a big mover behind NFC in its earlier days, currently implements the technology mainly for short range data exchange – such as swapping business cards – not for payments. And Apple has been particularly reticent, with one analyst claiming its upcoming iWallet will use Bluetooth instead of NFC.
The iPhone 4S and iPad HD already come with Bluetooth 4.0 technology, which would avoid the need to include NFC, argues retail analyst Pablo Saez Gil of ResearchFarm. He points to Apple's cautious attitude to NFC over the past two years, which have generally seen a storm of interest in the swipe payments mechanism. Google and several carriers have NFC-enabled hand-sets the basis of their mobile payments activities, but others like PayPal have held back, arguing that the need for merchants to adopt new terminals, and consumers to learn new habits, will slow uptake.
Apple has yet to adopt NFC in an iDevice, despite the appearance of products like Google Wallet, MasterCard Paypass Wallet and Visa PayWave all use the technology. By contrast, argues Gil, Apple has been an early and aggressive mover in supporting Bluetooth Low Energy (BLE) in its whole portfolio of devices.
The latest iPad and iPhone models were the first major mobile gadgets to support BLE at the time they shipped and the technology could support cloud-based transactions, with Bluetooth handling the front end connection. This would do away with the need not just for NFC, but for cash registers and credit cards, reducing the hardware investment for retailers.
The standard “allows low consumption chips to act passively in the form of stickers in a similar fashion to NFC tags and devices can automatically and passively connect and transfer information seamlessly,” said Gil. “The technology also enables long distance connections between de-vices of up to 50 meters. This feature will eventually enable payments on the go, without the need of fixed point of sale and traditional checkouts.”
“Cloud-based payment solutions will produce the largest number of value benefits for retailers and consumers,” said Gil. “While NFC still has the largest momentum behind it, it is clearly losing steam. Payments incumbents are embracing NFC because it simply represents an update of their delivery format rather than a threat to their business model. In contrast, cloud-based payments can gain mass adoption overnight, as they will arrive in the form of mobile apps, be they digital wallets or mobile retailer apps.” Payments majors like eBay, as well as start-ups like Square, have been experimenting in this area, particularly targeting smaller merchants.