10 September 2014
The potential breakthrough in mobile wallets thanks to NFC chips
Paying in an offline store while holding the new iPhone close to a checkout point to make a transaction with your iTunes account – it could be that simple. Apple will include Near Field Communication (NFC) chips on the new iPhone that was introduced on September 9th. This could be the breakthrough mobile wallets has needed. If one company has the user base and the technology to make it happen, it is Apple. The combination of the new iPhone, NFC chip and iTunes account with credit card information delivers a new payments service: Apple Pay.
NFC technology isn’t new, and a lot of smartphones already have these chips. Companies like Google (Android phones) have invested in the digital wallet too, but thus far U.S. retailers have been slow to adopt the new technology. This could change with Apple entering the market because iPhones have the largest market share in the U.S. This is a profound base for mainstream adoption.
As said, the adoption of mobile wallets or mobile payments has been rather slow. “No mobile wallet has developed a strong enough value proposition to get consumers to change the ‘form factor’ with which they pay”, according to a previous post on this blog. Recent research from Aite Group finds that in order to get consumers to start using mobile wallets, technology companies and brands must ensure the user experience is exceptional and easy, and includes engagement features.
This is exactly the strength of a company like Apple. Its software and hardware are designed for maximum user experience, which is a great start for a new payments platform. The platform is already there, because about 800 million people now have accounts on Apple’s iTunes service, according to this article on Wired.
Shop offline with your iTunes account
With iTunes it’s possible to buy things online, like movies or songs. By introducing the NFC chip, Apple brings shopping possibilities to offline stores using the information from an iTunes account. How does it work? “With the iPhone fingerprint reader, Apple could also turn the iPhone into a secure way of paying for stuff in the real world, inside brick-and-mortar retail stores. Hold your iPhone up to a scanner on the counter, and you’re done. With your credit card already on file, your fingerprint would be the only signature you’d need,” as described in the article on Wired.
So why should Apple dive into this market? According to Wired, Apple is in the perfect position to launch its own mobile wallet. “The company has a vast trove of credit cards already on file thanks to iTunes (over 800 million), and a huge pool of potential users, thanks to the millions of iOS devices out there. And mounting evidence has indicated that the company is investing in such an endeavour.” An unknown source claimed that Apple has reached a partnership with major payment networks, banks and retailers. The agreement includes the major credit card companies Visa, MasterCard and American Express. It’s the first time that these three team up with a brand to introduce a new mobile payment service.
Software and hardware combined for a new service
Besides building the software, Apple has been working on the hardware to develop a new payments service. The specifications of the new iPhone show that it will include a NFC chip. Dutch chipmaker NXP will supply Apple with NFC technology that enables smartphone payments in the next generation iPhone, according to the Financial Times. The Touch ID fingerprint reader will play a role in securing the platform. This means that software and hardware are being combined for a new service, but will people use it?
Easy to use, supported by the three major credit card companies and the introduction of a NFC chip – it sounds like a good combination for a new payments service. My guess is that this is the next logical step in mobile payments.