The biggest new feature on the iPhone 5 may be a relatively under-reported one: the installation of a Near-Field Communications (NFC) chip that would allow the iPhone 5 to process mobile payments.The Wall Street Journal recently detailed the high-level debate Apple executives are currently having over whether and how to do just that.
In a recent report, BI Intelligence explores the state of mobile payments, explaining how NFC differs from other solutions in the market, and analysing how Apple has a unique opportunity to own NFC and upend the mobile payments market.
Here’s why Apple — and only Apple — could make NFC work:
- NFC essentially turns phones into wallets: NFC lets people pay for products at retail stores by simply waving an NFC-enabled phone at a receiver. Credit card companies and carriers are talking about it, OEMs are adding NFC chips to phones, Google built it into Google Wallet, and Microsoft announced that Windows Phone 8 will support it.
- But, NFC suffers from the chicken-and-egg problem: Retailers will not add NFC receivers to their point-of-sale systems until they see an economic rationale to do so — that is, until enough consumers are paying with NFC or want to pay with NFC. Meanwhile, consumers will not see the point of using NFC until there are enough receivers for it. This is a very large network effect to overcome.
- And, there is no evidence that NFC is actually more convenient than cash or credit: Handing out cash at the register or giving out a piece of plastic and signing is very convenient. Whatever mobile solution attempts to replace cash and credit needs to be at least as convenient to have a hope of breaking into the market.
- Apple is therefore uniquely able to make NFC a viable payments solution: Hundreds of millions of consumers have accounts with Apple and already use them to purchase goods. That consumer power, combined with strong iPhone 5 sales, would give Apple a great shot at bringing big retailers along with their move to NFC. NFC would then have a chance to suddenly reach critical mass all at once, and Apple would be in an incredibly strong position in the sizable and growing mobile payments space.
In full, the report:
- Outlines the two overriding strategic issues in the market.
- analyses the four kind of solutions that currently matter — card readers, apps, carrier billing, and near-field communications — and their prospects for success.
- Shows why it’s too early to size the market (but why it will be big).
- Maps out the winners and losers.