Apple Might Tap Old Tech For Mobile Payments


Adriana Lee

September 2, 2014

I rarely buy things in stores with cash anymore. Between mobile apps and credit cards, there’s very little need.

Apple reportedly wants to streamline that experience even further—by using a technology many had given up for dead.  

Wired’s sources tell it that the iPhone maker is putting NFC wireless chips in its next new smartphone, presumably to allow for mobile payments. The Financial Times says that Apple is working with NXP, a Dutch chipmaker which already supplies some components to Apple.

If that’s true, iPhone users would be able to tap their devices on terminals in stores, on buses and other places to pay for things, check in or transmit information. 

This once sounded like an intriguing concept … back in 2007. That’s when the first cell phone—the Nokia 6131—came out boasting NFC. Since then, other devices have supported it, such as LG, Samsung and Google Nexus phones. But Apple has been a holdout, a factor which many have pointed to as crippling NFC acceptance. Retailers weren’t interested in a technology which only a small set of phones had installed, and consumers weren’t interested in a newfangled payment method which wasn’t widely accepted and was harder than just swiping a plastic card.

The question now is not whether Apple has the juice to blow the dust off this technology. The real question is why now.

The Rise And Fall Of NFC

NFC, short for near-field communications, is a variation of RFID, a technology used in keycards, transit passes, and other devices. While RFID devices varied in range and had security problems, NFC improved on older standards by requiring a physical tap and specifying better protection for data.

NFC can run without power, so a dead phone battery wouldn’t have you panhandling for lunch money. (Most systems require a live Internet connection for payments over a certain amount, though.) Its mix of hardware and software can even separate sensitive data like credit-card detailsfrom the rest of your phone in case the device is hacked. 

For years, that exciting premise fueled rumors that Apple would put NFC in the iPhone. That never materialized, even as competitors put it in some Android and Windows devices. 

Consumers and tech innovators gave NFC the cold shoulder—too complicated, too subject to carriers’ controls. Square and PayPal bypassed it altogether, using other ways to securely identify customers. Google Wallet’s NFC payment option has been all but dead on arrival, killed by a lack of support from carriers. An industry consortium, the unfortunately named Isis, has had similar problems. 

And retailers like Best Buy and 7-Eleven have reportedly ditched their initial support for NFC, switching to simpler mobile-payment technologies like barcode scanning—a solution Starbucks, Square, and PayPal have all embraced as compatible with existing cash registers and familiar to consumers and cashiers.

Too Late Or Just In Time?

Meanwhile, Apple has been quietly keeping an eye on NFC. The company has filed related patents, one of which was discovered as recently as last January

After all this time, Apple CEO Tim Cook and his crew might be finally ready to pursue tap-to-pay as another iPhone payment option. And this timing makes some sense, when you consider what the company has been up to lately. It launched Passbook, the location-aware app that slaps coupons and other things on screen when you’re near a store; Bluetooth-based iBeacons, for in-store customer tracking; and Touch ID, a fingerprint scanner, in the iPhone 5S. 

Apple also loves to mention its hundreds of millions of credit cards on file in the iTunes store—though processing its own credit-card transactions at retail are a far different beast than processing transactions for other retailers, where all kinds of complications arise from fraud, disputes, and payment glitches.

Even so, several pieces in Apple’s mobile payments jigsaw puzzle are in place, ready to lock together in a system that knows when you’re approaching a store, can send a promotion to you based on the aisle you’re in, and authenticate you when it’s time to purchase. All it needs now is a way to conduct the actual transaction.

With NFC, that would mean bumping an iPhone to an NFC-ready terminal to transmit payment details. 

Although Apple doesn’t even use it in its own stores— people can pay directly for accessories and other gear from the Apple Store mobile app and walk out with the item, no waiting required—it offers a nice alternative for retailers not ready to ditch the time-honored transaction ritual. 

Striking While The Iron Is Hot

There is no doubt that people have become accustomed to shopping with their phones. 

But most of that so-called “m-commerce” is people engaging in conventional e-commerce, using phones or tablets instead of laptops. Players like PayPal cite big numbers for their mobile transactions, deliberately conflating in-store retail payments with e-commerce that’s just shifting to different devices.

And it’s far from clear that retail payments are broken. Most consumers seem perfectly happy swiping plastic cards. PayPal and Square have put an emphasis on ordering ahead with their mobile apps, a scenario where it makes sense to bypass the conventional card swipe.

Where phone-based mobile payments may matter most, though, are markets that are far from home for Apple.

Apple cares deeply about making inroads in China. Smartphone users there are voracious mobile shoppers. Chinese tech site TechNode reported figures from the People’s Bank of China, revealing that mobile payments in the country amounted to nearly $1.6 trillion in transactions last year. 

Granted, this figure covers online purchases, in-store payments using mobiles, and person-to-person money transfers—so while it’s an eye-popping figure, it doesn’t really correlate with the potential market for NFC.

Other reports indicate NFC transactions account for a small slice of phone-based shopping in China. The reason: There just aren’t many opportunities to pay with a phone tap. Apple could change that by galvanizing the market and persuading retailers to take a risk on NFC.

Ultimately NFC may matter for more than just payments. Apart from shopping, NFC could also deliver convenience features in smart homes, cars and health devices, which are all areas that Apple’s already addressing. 

Apple has a knack for taking ho-hum technologies and turning them into hot, in-demand products. That’s sort of its specialty. The signs indicate it’s finally ready to try its Midas touch on NFC. It won’t be long until we know for sure. 

Lead photo by Incase

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