Apple’s New iPhone Deals a Blow to NFC

Apple’s New iPhone Deals a Blow to NFC

Apple's announcement Tuesday of fingerprint-scanning technology in its high-end iPhone may usher in a new era of mobile payments.

But is it hurting an older one?

Missing from Apple’s iPhone 5S smartphone is a technology known as near-field communication, or NFC, which enables payments and other actions by simply waving a phone in front of a reader. Merchants, payments companies and public transportation authorities have long hoped NFC would catch on to speed transactions.

With 40% of the U.S. smartphone market, Apple commands a large lead over other handset makers, according to Nielsen data. Its mobile operating system and app store are influential among application developers.

“It’s definitely troublesome for any developer looking to support NFC that it is not in the iPhone,” said Jordan McKee, an analyst with researcher Yankee Group. “It’s not going to reach massive scale without Apple adopting NFC.”

Though nearly every other major smartphone maker has models with NFC capability, a recent Yankee Group survey found that just 18% of U.S. consumers have such handsets, said McKee.

NFC has been slow to catch on in part because it isn’t any easier than a credit-card swipe, and because not enough stores accept the technology. According to Gartner analyst Mark Hung, fewer than 100,000 NFC-enabled readers are in use in the U.S., which compares with near-ubiquity for traditional credit-card readers.

Meanwhile, early NFC adopters like BlackBerry and Nokia have seen their handset sales decline. An effort by Google to create a digital wallet linked to NFC chips in some Sprint phones has slowed as other carriers favor their own NFC joint venture called Isis, which is only available in two U.S. cities.

NFC also is facing competition from a growing number of startups and established players that are looking for a piece of the mobile-commerce prize: control over data and the fees generated. A slew of mobile apps and different payment options are either available now or in the offing.

Apple and eBay’s PayPal are working on technology that can detect a smartphone’s presence in a store through Bluetooth and send coupons or enable payments wirelessly. That’s more flexible than NFC, which works through frequencies transmitted from a phone that is in close proximity to a reading device.

Though Apple has said little about its technology, called iBeacon, beyond a mention in a slideshow at a June event, specifications provided to developers show it will be a part of iOS 7 mobile OS. PayPal announced its version, called Beacon, earlier this week and said it will begin selling the transmission devices to merchants later this year.

Square is among a group of companies that hope to make mobile commerce automatic through Bluetooth technology that can accept payments wirelessly after a user has checked in on their device. Others are developing hardware for store registers that can accept credit cards or read barcodes on a phone’s screen known as quick response, or QR, codes.

“There is a realization that NFC has to be more than just payments,” said John Devlin, an ABI Research analyst. “There is, as they say, no killer app for it yet.”

Devlin said NFC use is more common in Asia, where countries like Japan and South Korea have readers in subway turnstiles, an application still nascent in the U.S. The technology can also be used in other ways, such as unlocking hotel room doors, logging into computers, syncing smartphones to automobiles and downloading coupons from posters. Some museums are starting to install NFC readers for visitors to download information about artwork.

Apple uses barcodes in its passbook software that stores airline tickets, coupons and membership and loyalty cards. Charles Golvin, a Forrester Research analyst, said Apple’s decision to exclude NFC may have to do with the cost of the chips or how much space they occupy in a phone’s guts. An Apple spokeswoman didn’t reply to a request for comment.

Still, it is the promise of NFC, rather than the actual usage, that may explain why an increasing number of devices are being manufactured with the capability. For 2013, Devlin forecasts 320 million devices will be shipped with NFC capability. That’s up from 147 million just last year.

Apple may ultimately regret its decision not to include NFC in the iPhone 5, Gartner’s Hung said. “If they don’t put NFC in an iPhone soon, they risk being a technology laggard,” he said.

Source: http://blogs.wsj.com