Ebay boss John Donahoe often quotes a merchant saying NFC stands for “Not For Commerce” – and dismisses the prospects of Near Field Communication technology used to turn handsets into mobile wallets.
He got some support this week from Apple, when the company chose not to embed NFC chips into the iPhone 5.
NFC proponents had hoped Apple would endorse the technology, which passes encrypted data between devices at close range without contact. So instead of swiping a credit card, shoppers can simply wave their phones at a checkout terminal to pay for their goods.
The technology is backed by the largest US carriers and credit card companies, and has started to emerge in the UK, but has struggled to take off because merchants have been reluctant to spend money upgrading their checkout terminals until NFC is more widely adopted.
“Anyone hoping NFC would be a reality soon is disappointed,” said Sanjay Sakhrani, an analyst at Keefe, Bruyette and Woods. “Many in the industry were hoping inclusion in the iPhone would be a springboard for more adoption. This takes the impetus away.”
Many in the industry were hoping inclusion in the iPhone would be a springboard for more adoption. This takes the impetus away
Like many new technologies, NFC is hampered by a chicken-and-egg problem. Mobile phone makers such as Apple are reluctant to take on the extra cost and engineering effort of embedding NFC chips because many merchants can’t accept payments this way yet. Meanwhile, merchants won’t install NFC until more consumers have the technology on their phones.
Following Apple’s iPhone 5 launch, payment platform provider Isis said it was delaying the launch of its NFC mobile payments service for the second time this year.
“Isis has placed a massive bet on NFC,” said David Evans, founder of Market Platform Dynamics and an adviser to companies in the payments business. Apple’s decision “is another reason to believe that Isis doesn’t have much promise of getting off the ground,” he said.
Apple going it alone
Instead of embracing NFC, Apple is developing Passbook, a mobile app that pulls together loyalty cards, tickets and coupons on the new iPhone. Many analysts consider this an early version of a digital wallet, except Passbook does not let users link their credit and debit cards yet.
Other digital wallets have already been developed by companies including eBay’s PayPal, Google and Visa. These wallets aim to bring together credit and debit cards, bank accounts, loyalty cards, rewards and coupons in one place, letting shoppers pay for purchases mostly online, but increasingly in physical stores too.
NFC’s advocates argue it eliminates plastic and cash and can be more secure than magnetic strips. But that alone will not persuade consumers to stop using credit cards in stores because plastic is already so convenient, experts say.
“It is a new technology and one that is unfamiliar to users. So that opens up new possibilities for abuse and naivety,” said Charlie Miller, principal research consultant with Accuvant. But he said NFC allows for interesting security options that traditional credit cards don’t, such as account numbers that change dynamically.
PayPal is betting that other services that make digital wallets more useful will encourage consumers to switch and is designing a digital wallet that helps consumers do as many things as possible from one place, including buying flight or movie tickets, sending money to other people and tapping coupons, rewards and loyalty cards.
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