Apple has been rumored to be close to supporting NFC for more than four years, with Apple never doing it. That ambivalence is critically important, as the aggressive pilot-happy demographic that loves the iPhone is exactly the audience that NFC needs to woo. As long as iPhones and iPads won’t do the NFC dance, NFC will have a difficult time getting up much of a game.
Is 2014 going to be different? A group of analysts at Pacific Crest on Monday (Aug. 4) issued a report that not only endorsed an Apple NFC move—in the form of a deal with Visa, via Visa Checkout—but predicted it “could happen as early as this Fall.” The report’s premise is that NFC payment capability will be built into the iPhone 6, the next version of the smartphone.
Pacific laid out its rationale for why it thinks Apple will now embrace NFC and it boiled down to four data points. Point 1: “In 4Q13, NXP Semiconductors signed a $40 million multiyear IP licensing agreement related to mobile payments. We believe this agreement was with Apple and involves the company’s NFC and secure element (SE) technologies.” Point 2: “Apple is believed to have reached a deal with China UnionPay, which will allow iPhone users to make purchases on more than 3 million QuickPass POS terminals in China. QuickPass is a POS terminal with an NFC receiver.”
Point 3: “The recent deployment of NFC-enabled mobile POS terminals in Apple stores from Verifone suggests that Apple has finally embraced this new payment communication standard.” Point 4: “Recently filed patents by Apple for mobile payments suggest an NFC/SE-based solution.”
The report argued that Visa’s recent token security moves “could lower security hurdles that have hampered previous mobile payment projects” and that “a new security scheme could lower business-model obstacles and Apple could leverage its affluent-skewed consumer base and credit card stockpile to add value via an improved in-store shopping experience. For example, seamless checkout, offers, iBeacon.”
The analysts also predicted financial impacts for various payment players. “New Visa products could enable the new tech titans to drive incremental revenue from valued-added services (~$2 billion opportunity with 5 percent of digital payments), offers (~$100 billion opportunity with 1 percent of digital payments), or via core business synergies (for Google, assuming 10 percent increase in pricing, every 1 percent increase in volume would equate to roughly an incremental $500 million in revenue). Apple, Google and Amazon could benefit from total addressable market expansion and share gains. NXP Semiconductors and Synaptics could boost volume by supplying next-generation payment-enabling technology. For eBay, we see risk of increasing competition in e-commerce payments and think if Apple launches mobile payment, it could hurt investor sentiment on eBay.”
In short, their investor guess was that these moves would be positive for Apple, Visa, NXP Semiconductors, Synaptics, Google and Amazon, but “mixed” for eBay and Gemalto. What kind of dollars are at issue? Pacific made some guesses that value-added services could deliver $1.8 billion revenue and that mobile sales offers have a $120 billion revenue potential.
“Apple could use its large stockpile of iTunes accounts and cards on file (~800 million), along with Passbook and a new token partnership with Visa, to provide a highly scalable payments platform. NFC and secure elements could be included in iPhone 6 to enable sophisticated mobile payment device security,” the report said. “If Apple uses Visa’s new token service, it could lower adoption hurdles and help Apple gain scale more rapidly. Scaling up is a key obstacle that has muddled previous mobile payment projects. A combination of cloud-based (HCE) and physical (SE or TEE) seems like a plausible security strategy for Apple.”
The report also focused on the many NFC missteps to date. “Security has played a key role in the formation of mobile payment initiatives and in the past has introduced complex business models that have been unable to scale quickly. ISIS used a physical secure element and a carrier SIM rental model. Google has moved toward a host-card emulation to reduce business-model friction,” the report said. “PayPal has relied on distribution partnerships with terminal providers and networks. New security models could lower adoption hurdles for mobile payments at physical retailers and expand the Visa platform, enabling new commerce opportunities for technology giants, merchants and issuers.”
For years, Apple has been adamant that any payment mechanism would have to revolve around iTunes, which is arguably just as powerful an alternative payment offering as PayPal. By forcing payments to go through iTunes, Apple could control more of the transaction and any resultant fees. On the other hand, a partnership with Visa is not a slam dunk for Apple iTunes acceptance anywhere. Merchants would have still have to install and/or turn on NFC in order to leverage any Visa/Apple NFC-enabled payment method. For a sense of Visa’s challenges in this area, please see Karen Webster’s column about Visa Checkout and its ignition challenges.