Commentary

Apple and NFC: Will They Or Won't They?

I have a confession. I like to study vintage advertising. I know, it probably sounds weird in this day of digital and mobile techniques but I think that looking at old TV commercials and print advertising provides a really interesting barometer of our culture at a particular point in time, and how the “ad men” of that period thought they could motivate consumers to respond.

I was reminded of perhaps one of the most iconic (and effective) ads of the last half century as I was reading the many blog posts and articles conjecturing the features and functions available on the much anticipated iPhone 5. This campaign, Clairol’s “Does She or Doesn’t She," was created in the mid 1950s to drive sales of its hair coloring products. Within a decade, nearly 50 percent of all American women (up from 7 percent) were regularly coloring their hair and annual sales of these products had grown from $25M to $200M, with Clairol accounting for more than half of those sales (it still does in a market sector that is now roughly $1B annually).

So, while hair coloring and iPhones have little to do with each other, the massive number of “will they or won’t they” debates in the blogosphere around its NFC and mobile payments intentions reminded me not only of the Clairol campaign, but the fact that, like the hairdresser in those famous ads, only Apple knows for sure. And, true to Apple’s penchant for absolute secrecy, its lips are sealed.

Which means, of course, that I, along with everyone else outside of Apple, have no knowledge whatsoever of its plans. But, I am betting on the side of “won’t they” and here’s why.

Believe me, lots of people would LOVE for Apple to include NFC in the iPhone 5 since that might nudge very reluctant merchants into installing NFC-enabled POS devices. At ~32 percent, Apple’s US smartphone market share isn’t the biggest but it is the most affluent - roughly a third of all of the spending power in the US is in the pocketbooks of those who own iPhones. Having lots of people with lots of spending power running around with NFC-enabled iPhones could conceivably ignite NFC as a viable mobile commerce solution in the US.

Except that it really wouldn’t.

Let’s say that the iPhone 5 came equipped with an NFC chip. The consumers who buy those phones still wouldn’t be able to use them to buy stuff at the physical point of sale because less than 1 percent of all merchant POS devices in the US are NFC-enabled today. Merchants would still have to do whatever integration is necessary to accept whatever form is payment is enabled via that NFC chip. And someone would have to come out with an NFC-enabled mobile payment solution that consumers want to use. So, it’s hard to see why, if you’re Apple, you would want to spend the money to adapt its phones to support NFC when there is no clear benefit to consumers on day one (or even day 1100 — a bit more than three years after the launch). Keep in mind, this is Apple, whose customer experience drives everything it does, and increasing its costs to give customers a feature they can’t use doesn’t strike me as very “Apple-esque.”

There’s also another reason for betting against NFC in the iPhone 5. It’s hard to know exactly how many people will end up buying the iPhone 5 when it’s released. Sure, there will always be those diehard early adopters who will stand in line so that they can be the first to have one, but iPhones are expensive. The 4S launched last year, was $400 (the 64 MGB model). The iPhone 5 will be at least that much - with some blogs predicting the price to be more like $800 (seems unrealistic). But, no matter, because these phones are so pricey, people tend hang onto them for a while, Apple’s 4S buy-back program notwithstanding. Sitting here today, it’s hard to know whether the iPhone 5 will have enough new bells and whistles to persuade consumers to shell out the money to upgrade their device. If the net-net here is that the iPhone 5 sells a few million in its first year, that’s hardly enough to ignite NFC - and for all of reasons stated earlier, that ignition wouldn’t happen right away anyway. So why would Apple spend the money?

Contrast that to the launch of Apple Passbook, which will be available via iOS6. On day one, consumers can load their store coupons, tickets, loyalty apps and even closed loop cards like Starbucks to their Passbook app. Consumers don’t have to buy new iPhones to get this feature, they just have to download the new operating system. Right away, there will be millions of Passbook-enabled iPhones whose users can derive great utility from the app. And, Apple has also announced the availability of a Pass API that will enable developers to “Passbook-enable” their coupons so that they can be automatically stored in Passbook. The secret sauce to Passbook is that it gets around the “hundred apps” issue by leveraging the Apple geo-location feature to push the Passbook-stored app to the front of the screen when the consumer is within striking distance of that store so that consumers can easily access the right apps at the right time and find value from using them.

So, if you’re Apple, why bother to ignite something that isn’t in its financial interest or of value to its consumers right now? Why should they be THE ONE to invest in igniting NFC for mobile payments when it really isn’t clear what financial or customer benefits it gets from doing so? Sure, Apple has filed for patents for things that leverage the NFC technology, but lots of firms file patents for things that they don’t, themselves, use for lots of reasons, including preventing others from doing similar things without some financial consideration being exchanged. Hey, you can even sue rivals for that, although of course Apple wouldn’t do that. ☺

Now, all of this isn’t to say that mobile commerce isn’t of interest to Apple, it most certainly is. It is actually right smack dab in the middle of mobile commerce right now and making lots of money in the process. When Apple enables players like Square and others to turn its devices in mobile POS solutions, it makes money from the sale of those devices. When banks launch mobile remote deposit applications that allow consumers to take pictures of checks and have them deposited into their accounts or merchants like Starbucks to launch apps that enable a better consumer experience at checkout in store, Apple profits from consumers buying those phones because they want those apps. In fact, what finally prompted me to give my beloved Blackberry the old heave-ho was Uber - the mobile app alternative to hailing taxis in a lot of major cities around the world. And, the iPhone just has more of those sorts of apps to choose from - or it has had them first. Entrepreneurs with mobile commerce ambitions write to the iOS first since they can efficiently reach the largest number of users in one fell swoop. The Android operating system may be more diffused than iOS, but it’s peanut-buttered across a variety of handsets and versions which make a developer’s job challenging when trying to reach a critical mass of consumers at the jump.

In all of those cases - and more - Apple has nothing whatsoever to do with the mobile payments transactions - the low margin part of payments - but it makes a lot of money on the sale of its hardware. Apple doesn’t have to do much more than it is doing now, to rake in a lot of mobile commerce related revenue, thanks to the efforts of others who are innovating in the space and riding its hardware and software platform as part of their own ignition strategies.

But, then there’s iTunes.

iTunes is a pretty widely used digital wallet. As you know, it is the only way that consumers can buy apps for their iPhones, songs for their iPods, movies for their Apple TVs, and digital content of any kind accessed via an Apple product. One year ago, there were 200M iTunes accounts - today there are 400M - and growing. That’s a pretty big consumer base for Apple to leverage if mobile commerce is on its bucket list.

But, the easiest way to leverage that asset and enable those 400M accounts for any sort of mobile commerce initiative isn’t to go thru the wailing and gnashing of NFC teeth, it is to do something in the cloud. That way, it doesn’t matter which version of the iPhone anyone has, or if or when they want to buy a new one. Everyone with an iTunes account, on day one, could, in theory, transact. And, transact in a way that gives Apple control over the mobile commerce experience in every way that matters to it - the user experience, its financial return and depending upon how it rolls out, even the merchant experience.

Apple’s Passbook seems like it might be a peek into the Apple mobile commerce playbook. It relies on the operating system and not the hardware device to enable functionality across a wide swath of users. It uses an API to make it possible for more entrepreneurs to want to have their apps as part of the Passbook container. The more apps that are Passbook enabled, the stickier the consumers and merchants become to their iPhones. Linking iTunes accounts to those Passbook enabled apps doesn’t seem like too much of a stretch. Today, Passbook only enables the closed loop schemes of others where POS integration is a whole lot easier to manage. Who knows, maybe Passbook becomes the way that closed loop schemes ignite on mobile since it does solve the “hundred stores, hundred apps” problem that each of them undoubtedly face today. If that’s the case, igniting those schemes would probably have a different business model attached to it. What’s clear is that Apple is too small a player overall to control the entire payments ecosystem but taking on a small yet potentially profitable niche (where it could influence and even control both the consumer and merchant endpoints) might be more viable.

So, that brings me back where we started. We’ll all know in another week or so, what only Apple today knows for sure. And, that’s when — to recall another famous ad-inspired slogan — the rubber may, in fact, meet the road on the journey to mobile commerce.

What do you think? Will they or won’t they ... include NFC in the iPhone 5? And why?

——————————

NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

Click to comment

TRENDING RIGHT NOW