Contactless iPhone: Hype or harbinger of things to come?

With the hype building ahead of Apple's widely expected step into contactless payments through the upcoming iPhone 5, IDC Financial Insights analyst Aaron McPherson has moved to dampen over-excited expectations.

In a blog responding to the recent Bloomberg story on NFC-enabled iPhone 5s and iPad 2s, the research house's practice director flags several issue he argues could hamper adoption of the technology.

McPherson hazards a "guess" that there around 150,000 MasterCard PayPass-enabled terminals in the US, less than five per cent of the total, and a figure that needs to rise considerably to encourage mass adoption.

He also questions how important a player Apple is in the face of a fast growing, open standard, Google Android operating system which is also preparing for NFC, and asks how much Apple will charge merchants.

However, the biggest question posed by the analyst is will Apple's implementation be open or will, as history suggests, it operate a closed shop? If this is the case he argues "competitors will continue to forge ahead" especially as NFC is an open specification, restricting its control.

"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," he argues.

Concludes McPherson: "In short, as with Isis [the venture from a group of US telcos], 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."

While numerous competing contactless offerings pepper the US landscape, France and Singapore have both embarked on wide-ranging collaborative interoperable NFC projects of the sort favoured by McPherson.

The mobile contactless payments debate rages, with Finextra community members divided on the value of recent developments such as the latest Barclaycard and Orange project, Google's plans and the new Starbucks app.

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Mastercard Visa

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Cards Eftpos Mobile & online banking Research/analysis

Comments: (1)

Steven Klebe - Google - Mountain View 28 January, 2011, 19:28

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I completely agree with this assessment. The inertia that has to be overcome to make NFC meaningful is Mt. Everest sized. The biggest issue is any meaningful long term benefit to the merchants. There might be a short term pop from limited availability and therefore drive some marketshare but this would be neutralized very quickly. And, as merchants have learned time and time again, each new payment method adds cost and complexity to their operation, training, customer support, etc... Unique situations like the Starbuck's mobile app driven by the frequency of visits and clear ROI that merchant's get from the loyalty driven around pre-paid (+ auto top up like this program) makes this a clear winner, but that will not always translate into other situations. BTW, a recent comment I saw about the lack of TIPs offered up by users is more than offset by the increased frequency of visits which clearly benefits the employees, albeit not as directly. And, as a user, I would not be oppossed to an option in the application that enabled me to "auto-tip" as part of the transaction.