As I did with the earlier Bloomberg report about the AT&T/Verizon Wireless joint venture that turned out to be Isis, I am cautioning my clients not to read too much into this. Apple faces huge obstacles in making this work.
Yes, Apple is rumored to have over 150 million payment accounts enrolled in iTunes. Yes, Apple has a history of driving the market in mobile technology.
Yes, combined with the statements from Google and Isis, it now appears that all the major smartphone brands will support NFC by the end of this year. However, there are a lot of problems that are simply not addressed in the article:
- How many merchant locations will be able to support NFC payments at launch? MasterCard has been reluctant to give out figures for the US alone, but my guess is that we have somewhere around 125-150,000 PayPass-enabled terminals out there, and NFC ought to work with all of them. That is still less than 5% of all the terminals in the US. Worse, my own experience is that many of these contactless readers have not been maintained properly, so the actual installed base may be substantially less. If consumers can't use their NFC phone with most of the merchants they patronize, that is not a great experience. People want their payment devices to "just work," and will go back to the tried and true if the new technology is not absolutely reliable.
- Is Apple's implementation open or closed? To be specific, will banks be able to access the NFC chip to issue virtual cards? How about merchants? Developers? Based on history, I'd bet that Apple will opt for a closed system. In that case, competitors will continue to forge ahead with their own NFC alternatives, particularly if Apple and Isis are doing the hard work of persuading merchants to upgrade their terminals. Remember that NFC is an open specification; Apple will not have the level of control it did with the App Store. Ironically, Apple would probably be better served by making its implementation open, because then it could choke off the efforts by Visa and Device Fidelity to add NFC to the iPhone.
- How much market share will Apple have by the end of the year, anyway? Android has already overtaken it in the US, and decades of history demonstrate conclusively that closed systems ultimately give way to open standards. IBM and Microsoft are two examples of companies that were more dominant than Apple at its peak, and both lost substantial power to competitors leveraging open standards. Android, as an open standard, will be more influential in the long run than iPhone, lessening the impact of whatever Apple chooses to do.
- What will Apple charge? Certainly not what they could have a year ago, because the Dodd-Frank act makes ordinary debit cards extremely competitive. How many merchants will want to support Apple's system if it comes with a 2.9% price tag? True, Apple will benefit from cheaper access to funds on the the other side, but they will have to price aggressively in order to get merchants to upgrade their terminals.
- Why is Apple doing this? It's not clear to me what the benefits are of NFC-enabling the iPhone, absent support from other industry players. It already supports 2D barcodes, SMS, Bluetooth, and mobile web, any of which could be used to make purchases at the merchant point of sale or person-to-person payments. We need a lot more context to evaluate this move.
In short, as with Isis, I would be much more excited about this news if it came in the form of a larger alliance of banks, mobile operators, terminal manufacturers, retailers and device manufacturers to support an open NFC standard, using existing payment networks as the platform. That is probably not going to happen in the next year, so I don't think this will move the market much. On the other hand, if Apple does use an open implementation standard, that could really be important. What do you think?