Apple missed a golden opportunity to dominate mobile payments

Well, its over.  The long awaited launch of the Apple iPhone 5 has happened and just about everything that had been rumoured was officially released by Apple.  The iPhone 5 comes with a taller 4″ screen, 20% lighter and thinner, aluminium back, smaller 8 pin digital connector,  high speed 4G LTE network support, faster dual core A6 processor and new and improved earbuds.  Pretty much everything had been leaked before the launch so none of these features were much of a surprise.

However, the one area, that I was convinced Apple would come out with a real game changer was to include the Near Field Communication (NFC) chip and link the new iOS 6 Passbook application with mobile payments using NFC.  I was wrong!  They didn’t.  Apple VP Phil Schiller today came out with a weak statement that “Passbook does the kind of things that customers need today“.  I don’t think so!

Passbook will be great for Loyalty Cards, Gift Cards, Airline and concert tickets – anything that has a 2D barcode to scan – but that’s nowhere near mobile payments. Apple have really missed a golden opportunity to help shape the mobile payments market and take a leadership position as they did with music and iTunes.  Today Apple announced that they have 435 Million active iTunes accounts – all with current Credit Card and payment details, allowing one touch payment for iOS apps and even purchasing Apple products in selected Apple Stores.  A huge number of accounts far more than Ebay / PayPal, Amazon or Google, and a great platform for payments.

NFC is not new technology, its been around since in 2004. RFID chips have been around far longer and are out there in countless million contactless payment cards from MasterCard (PayPass) and Visa (PayWave) – already in use in contactless payments.  Apple has countless patents which include NFC including innovative patents which have the antenna imbedded in the front touch screen, and a number of patents around shopping lists and shopping applications.  So you have to believe that NFC still has to be coming from Apple.  Later.

But why wait for at least another year until the iPhone 6?  Samsung, RIM, HTC, LG and Nokia now all have phones with NFC capabilities and will be well supported with Android and Windows 8 apps alongside the now far more flexible Google Wallet V2.0.  Thanks to Visa, MasterCard and Amex contactless payment terminals are being rolled out at a fast pace.  In Australia, they are becoming far more pervasive with major Supermarkets, fuel outlets, convenience stores, chemists, fast food chains providing contactless payment terminals at Point of Sale.

Could it be that in the big US and UK markets, the contactless payment infrastructure in retail is not as pervasive?  Could it be that there hasn’t been a huge push from customers for this functionality?  Since when did Apple believe that customer demand should determine what great services and features they include in their products?  Is it more about who owns the customer relationship and how Apple could monetise the payment transaction and take their cut?  Maybe that is still what needs to be sorted out?  Today the banks, credit card companies and payment networks are taking that significant cut – and they are not about to give any of that up without a fight.

In any case Apple have missed a golden opportunity now in Mobile Payments to be the game changer and give NFC mobile payments the impetus that it needs to really get momentum.  It will come, we will just have to wait longer and probably someone else will come to dominate that space.  Who will that be?  Google, PayPal, Square – it’s anyones guess.

Will mobile payments be the death of plastic cards?

A couple of weeks ago I posted an article by Brett King (author of Banking 2.0) on the LinkedIn Mobile Payment Strategy group. The article generated a lot of interesting comment from industry players around the world that I thought would be worth sharing on this blog. The link to the article and the LinkedIn group is here.

The article’s premise was that rather than being a threat to Cash payments, Mobile Payments are more likely to result in the Death of Plastic Cards.  The recent Starbucks / Square deal demonstrated that payments can be made simpler with the use of mobile, without the fraud issues currently plaguing mag-stripe cards in particular.  Brett stated that customers will flock to adopt the new payment technology to “a much simpler, better informed payments interaction, plastic just looks dumb, insecure and outmoded.”

I agree with Brett in that disruption in payments is not going to come from the incumbents (Amex, Visa and MasterCard), but from new players like Square, PayPal and Apple – its already started and will lead to fundamental changes in the Payment Card industry, eventually leading to the “Death of Plastic”.

Generally the comments on the article agreed that Mobile Payments will be disruptive leading to significant changes for both Cards and Cash usage for payments.  Some key points that were also brought out included:

  • Apple launching the new iPhone 5 with NFC will drive a lot of the adoption of NFC based mobile payments (see my earlier post on this topic here).
  • Merchants will be the primary benefactors of the death of plastic with lower processing costs / merchant fees as new players come into the market with better value propositions (as per the Square / Starbucks deal).
  • More convenience for the consumer including the  bundling of coupons, offers, loyalty cards, receipts, etc automatically into the payment transaction and generating all the appropriate discounts.



Despite speculation Apple’s iPhone 5 will come with NFC Digital Wallet

Recently the speculation about the inclusion of Near Field Communications (NFC) in Apple’s iPhone 5 switched from “Yes it is definitely In” to “No it’s definitely Out“.  I believe there is a strong case to support Apple including NFC in the iPhone 5 based on Apple doing things a little differently.

The original speculation was driven by a photograph of a partly assembled iPhone 5 front panel with what looked very much like an NFC chip installed (see picture).  

Later, further analysis of the photographs and the iPhone 5 construction came out with the view that NFC could not be included because the metal back of the new iPhone wouldn’t allow enough room for the NFC antenna and because of power consumption concerns in conjunction with the new LTE 4G comms technology that will be in the phone.  See article here.

However, this is Apple so “Think Different“.  Apple was granted a patent in April 2011, which covers the addition of an NFC antenna to the front touch screen sensor panel, eliminating the need for a separate space consuming RFID antenna.

With the inclusion of Passbook in iOS 6, Apple has implemented the infrastructure for an iWallet (as well as loyalty, coupons, tickets).  Along with this, some 250 Million iTunes accounts all with Credit Card payment information, give Apple the ability to be a game changer yet again, this time in Payments.   All that is missing is NFC, to actually transmit the payment information at Point of Sale – it has to be there.

With the recent acquisition of AuthenTec finger print security technology, Apple also has the ability to add additional bio-metric finger print scanning security to iPhone payments. This will address a lot of the security concerns with mobile payments and further smooth the way for the introduction of mobile payments and a great customer experience.

Meanwhile, Visa, MasterCard and major retailers have been quietly rolling out Contactless payment terminals at Point of Sale globally (over 150,000 in Australia alone) putting the retail infrastructure in place for NFC payments to take off.  Watch this space.

All this, even without the recent moves that the competition (Google Wallet, ISIS, Square, PayPal) are making in mobile payments, means that Apple must move now or risk loosing the advantage in what will be a huge market.  Hence, NFC must be there in the iPhone 5.

Retailers need to get an App, online isn’t enough

A recent survey conducted in the USA by Harris Interactive for Apigee, an online API management platform, has indicated that shoppers will be using their mobile phones more than ever.  Many smartphone users have come to expect more than just an online presence from retailers, especially the younger demographic – where a smartphone app is becoming more important, as it allows them to do more when they are out shopping.  Venture Beat Article is here.

Mobile App Survey results

Mobile app usage in retail

Apple iPhone 5 mobile payment wild card

The new iPhone 5 with iOS 6 is due to be released in September.  Historically Apple has set the trends in Smart Phones which others have followed, but this time around the iPhone 5 will need to respond to the challenge laid down by the Android phones some of which already have Near Field Communications (NFC) payment capabilities.  Rumours are rife that Apple will integrate NFC with the new iOS 6 Passbook iWallet, giving Apple the ability to leverage markets such as mobile payments, ticketing, coupons, loyalty programs and secure access.

It is estimated that Apple has over 250 Million active registered iTunes accounts each with valid Credit Card details to allow for app purchases, which would give Apple a significant advantage in the mobile payments race making Apple the Wild Card in the mobile payments pack.

See the full article here.

PayPal in race with Square for Mobile Payments

PayPal is racing with Square and other tech companies to become the mobile payments service of choice as consumers increasingly use smart phones to make purchases in shops, restaurants and other retail outlets.  PayPal a subsidiary of eBay has a significant advantage with over Square with over 113 Million active registered accounts across 190 markets.

In May this year PayPal announced that they had made deals with 15 USA retailers including Home Depot, Toys R Us, JC Penney and Barnes & Noble to utilise the PayPal Here payment system.  PayPal has also signed agreements with Verifone, Ingenico and Equinox Payments to get PayPal’s payment technology onto their networks of payment terminals.  The full article can be found here.

This week news also emerged that McDonalds are currently testing PayPal Here in 30 McDonalds stores in France with the objective of cutting down the payment transaction time by using customer PayPal accounts.  if this is successful, it would open up a potential market for PayPal in 30,000 McDonalds stores globally.  See the full article here.

Starbucks Square’s deal shakes up Payment Industry

A couple of weeks ago Square Inc a two year old San Francisco start-up founded by Twitter co-founder Jack Dorsey, announced that they will be taking over the processing of all the payments for Starbucks 7,000 USA retail stores.  As part of the deal Starbucks will be investing $25 Million in Square and Starbucks CEO Howard Schultz will join the Square board. The Wall St Journal article on the announcement is here.

Starbucks acquired its stake as part of a $200 Million funding round that valued the company at $3.25 Billion (twice what it was valued a year ago).  If you have 17 minutes to spare the WSJ video interview of Schultz and Dorsey on the link above is worth watching.

Initially, the Pay with Square application will allow Starbucks customers to show their mobile phone and mention their name to complete the payment in a Starbucks store (by scanning a 2D barcode on the phone).  Later Geo Location functionality on the smart phone will be used to identify customers who have checked into the store and allow other associated smaller retailers in the area to promote special deals to the customer on their phones (even using Starbuck loyalty points).

Square was previously known for its white Square dongle that plugged into the audio socket of the iPhone and iPad to accept Credit Card payments that was used by numerous small businesses and taxi’s in the USA.  This was a significant departure for them and would increase their payment processing capacity significantly (before Starbucks it was already estimated at $6 Billion p.a. – Starbucks could more than double this).
Shortly after the announcement shares in traditional EFTPOS Payment processor Verifone, with a significant slice of the US and international payments market (estimated at $10 Billion p.a. in the USA alone), dropped more than 10% on the USA share market and prompted their CEO to quickly make a statement saying the deal was good for Verifone as they had been busy adapting to the burgeoning mobile payments market as well and had released a Square-like mobile service called Sail.  See the article here.

A week later news also came out that Wal-Mart, Target and 7-Eleven in the USA had joined together and were developing a “mobile payment network” to allow customers to pay with their smartphones.  The system, known as Merchant Customer Exchange, will be driven by the retailers themselves and would include a number of other retailers including Best Buy, Sears, CVS and Publix.  They are in discussions with banks and payment networks and were looking integrate their promotions into the payment processing application.  The Article is here.

With all the talk around mobile payments a number of the traditional (and some new) payments companies have joined together to form a Mobile Payments Committee as part of the Electronics Transactions Association, hoping to define the future of commercial mobile transactions.  The companies include Visa, MasterCard, Amex, all the USA mobile phone carriers, Google, ISIS and PayPal (significantly Apple and Square were not included).

August has been a big month for mobile payments, topped off as McDonalds has now just announced that they are trialling a new mobile payment system using PayPal Here in 30 locations in France.  PayPal has also struck deals with more than 15 large retailers in the USA including Home Depot and Office Depot to accept PayPal payments (see next post).