iphone5
588 days ago
 

Will the world end (or the travel industry survive) without NFC in the new iPhone5?

Apparently so – if you believe what you hear on Twitter and some of the tech press.

The travel sector was among many waiting with baited breath on the announcement as well. After all, we already knew that PassBook was coming after the iOS6 event earlier this year.

Add in some irrational exuberance over the iTravel patents and a dash of “…Apple-needs-to-include-NFC-to-keep-up-with-competitors…” and it was a forgone conclusion that NFC (Near Field Communication) would make its Apple debut on the iPhone5… until it didn’t.

Well in fairness, at least some rightly predicted that NFC was not making the cut (as well as giving some good technical details on how NFC works for the geeks out there).

So really, will the iPhone’s lack of NFC hurt it in the travel or retail context, and by extension it’s sales? Before we answer that, let me introduce a few (pesky) facts:

  • NFC is a decade-plus old technology that has yet to catch on as predicted. Yet that has not dissuaded analysts of presenting hockey-stick adoption curves (year after year after year).
  • In 2011, NFC-enabled phones were initially forecast to reach 70 million shipments, yet actuals came in under half that amount.
  • According to an August 2011 estimate from iSupply, only 31% of all mobile phones or 580 million NFC handsets in 2015
  • Analyst firm In-Stat projects 1.2 billion NFC chip shipments in 2015, and forecasts 375 million mobile payment users globally
  • Many of those NFC phones were produced by RIM’s Blackberry line. Would anyone look at RIM’s rapidly declining share and say that the NFC is a defining feature of phones people want to actually buy?
  • There are numerous NFC-based mobile wallet schemes…Google Wallet, carrier-backed ISIS (like they have our best interests at heart), Visa’s V.me, Amex’s Serve and others. Consumer confusion is rarely the path to accelerated growth.
  • The most successful mobile commerce app is arguably Starbuck’s app…and it uses barcodes.

It’s disappointing, but not disastrous

The truth of the matter is that today there are very few places (speaking primarily of the US; European & Asian adoption of smart credit cards is much further along, although not all contactless cards use NFC) that one can actually use NFC.

There is greater adoption in retail outlets though travel and transportation lag much further behind. Again a few statistics are helpful.

  • 15% of top 150 US Merchants are equipped with Contactless POS terminals, according VivoTech, a leading contactless mobile payment technology provider
  • ABI Research projects 85% of POS terminals will support contactless payment by 2016

That just looks at retail penetration. Let’s look at travel. Today barcode scanners are almost ubiquitous to scan paper boarding passes as well as barcode-driven mobile boarding passes.

That infrastructure will support the current Apple Passbook approach. Conversely, I have not seen one gate or security checkpoint in the US or Europe that works with NFC (they may exist, but I haven’t seen them in my personal experience). In either case, the deployment is far from widespread.

Looking at transit, a February 2012 report from Juniper Research, entitled Mobile Ticketing Evolution states:

“One in eight (13%) of North American and western European mobile users will use their NFC-enabled mobile phones as a metro rail or bus ticket by 2016, compared with less than 1% today.”

Further the report notes:

“…worldwide mobile ticketing transactions are set to quadruple to 23bn by 2016 and that NFC tickets will represent 50% of all mobile ticket revenue [my emphasis] that year.”

So again there are other technologies – half of all deployments – that will be in play including mag-stripe and other non-NFC contactless.

But the big picture here is that Apple does not launch new technologies until they have matured to where there are no compromises in usability (eg. the iPhone4S did not ship with LTE (Long Term Evolution). But LTE was introduced in the iPhone5 while still delivering increased battery life, something that the plagued the initial LTE phones).

Similarly, my guess is that Apple realized that the infrastructure for NFC was not mature enough to provide any real value proposition for the consumer that couldn’t be just as easily managed through other means, specifically bar codes for PassBook.

Now some could argue that by not including NFC in the iPhone 5 that Apple has not future-proofed the phone. But look back at the data – significant adoption of NFC isn’t projected to happen for 3-4 years.

And given that mobile phones are being replaced within 18 months, most iPhone 5’s will be replaced long before NFC goes mainstream. And in all likelihood the next (iPhone 5S?) and future iPhones will incorporate NFC.

So, in my view the lack of NFC on the iPhone 5 is not a reason why not to buy the product. It’s only those who think that checking the buzzword box is how you decide which phone to buy.

What do you think? Will you buy/not buy the iPhone because of the lack of NFC chip?

NB: Full FNC and Shopping overview from BBDO and Proximity ShopWork

 
 
Glenn Gruber

About the Writer :: Glenn Gruber

Glenn Gruber is a contributing Node to Tnooz and senior mobility strategist at Propelics, an enterprise mobile strategy firm.

Previously Glenn was AVP travel technologies at Ness Technologies, responsible for developing the company’s strategy and solutions for the travel industry.

Prior to Ness he held leadership roles at Symphony Services, Kyocera and Israeli startups Power Paper Ltd and Golden Screens Interactive Technologies.

He also writes a personal blog, Software Industry Insights

 

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  1. Roberto Da Re

    I have specifically chosen a phone with NFC over a non NFC one .. the problem I want it to solve for me is the following: I have to always carry 10 different cards in my wallet for regular use: personal and business CC, debit card, Oyster, Gym card, Loyalty card, etc.. and could do with having another 6-7 easily accessible.
    I want to be able to load all those cards in my smartphone and swipe the phone when I need to use one of them, rather than having to reach for a bulky wallet.
    The Phone should ask me for a pincode or do face recognition for authentication (easy to do)
    End of ..

    This is what some banks and CC companies pushing NFC have been promising .. will they deliver is another matter.

    If the IPhone5 had NFC there would have been further emphasis on this becoming a reality, but Apple probably can’t work out how to make any money with it, so they didn’t bother with NFC while instead they will continue to try to push Passport (which they charge for to be part of) using another “closed/proprietary” technology.

    The issue around NFC is not around Google wallet or whatever App will succeed with the consumers, but Apple allowing an open standard or not on their phones.

    However, I think that the banks will not stand still because they do not want Apple or anybody else to get in on the action when it comes to payments (they are talking about NFC stickers for phones that are not NFC and VISA run a trial during the Olympics where athletes used Samsung phones to process payments in the Olympic village)

    So, it looks like I will have to continue to carry around my big wallet for a few more .. “months”, not years hopefully!

     
    • Glenn Gruber

      Roberto,

      I also looked at buying an NFC phone a while ago, but I will say that not having it has impacted me one bit. And I also want the wallet as you do. But I’m just saying that NFC is not the only answer to that question. As noted in the article, Starbucks has had great success with barcodes for commerce, PayPal processes the most mobile payments without NFC and most mobile ticketing (from boarding passes to Eventbrite) rely on barcodes as well.

      Regarding Apple’s ability to monetize NFC I assure you that is not the issue. They already have access to each user’s credit card via iTunes. NFC would only enable more transactions to be processes over the phone, though they would have challenges getting merchants to give them 30% on buying groceries or other hard goods. Actually I think that the issue is more that Apple simply does not want to be a bank. If they become a payment processor that’s what they would become.

      Further, I’d hardly refer to PassBook as closed or proprietary technology. It is simply a mechanism to allow companies to extend their services over the iOS platform and create convenience for the consumer with APIs that are available to all who want to use them. Yes it doesn’t work on Android or Windows Phone, but the Google or Microsoft wallets wouldn’t work on the other platforms either — so none can claim advantage on that attribute. You may say that NFC is an open technology, but only as far as the ISO device communication standard goes (same for barcodes by the way). What will be closed is the payment platform. I guarantee you that Google, ISIS, VISA or other will not open source their payment processing platforms or refrain from charging retailers for its use.They will be closed in every meaningful way.

      And Passbook is a pretty cheap to build for, or at least I can assure you they are not making money on the developer fees — for the most part the technology is dead simple and essentially lets companies extend the tech they have at almost no incremental cost (most companies/retailers already support bar codes; they’d have to develop new software to support NFC).

      As for authentication, don’t forget that Apple acquired AuthenTec earlier this year which provides fingerprint authentication. That is certainly more secure than most other 2-factor authentication mechanisms which rely on the device and a password (one easily stolen, the other easily hacked). Unless you hack off a finger, it’s hard to beat.

       
  2. Alastair

    Glenn Gruber gives a much better account than John Gruber why no NFC in iPhone. iPhone will include Google Wallet in a new iPhone when hell freezes over or SJ is a forgotten man, which ever comes sooner. How Google Wallet can get up in that senario is the definition of ambition I guess.

    In Australia there is much MSM advertising about swipe payment systems being rolled out across the country by the banks/VISA. Maybe we were chosen as a lead market since we considered are early tech adopters.

     
    • Glenn Gruber

      Alastair, kind words indeed. Though I share his surname, he’s a lot more wired into to Apple than I.

      I didn’t mean to imply that I thought that Google Wallet would make it’s way to the iPhone. I agree with you that it’s never gonna happen. I just mentioned it as one of many NFC-centric wallet schemes out there.

       
  3. steve

    I know that NFC is supposed to be the next big thing but I really haven’t seen much user adoption. Of course this could be different if this was offer on iPhones but I still think it will take time for users to start using it.

     
  4. Mark Lenahan

    Tnooz have covered google wallet before, but here’s an amusing story from CNET reporter who tried to use the NFC Google Wallet trial in New York last May.
    http://www.cnet.com/8301-17918_1-57441845-85/google-wallet-what-can-you-buy-with-it-now/

    In addition to the phone app crashing there are some other scary comments there – having to get wallet out to show ID, the phone app not working if there isn’t a good wireless signal in the store, 5 out of 8 payment attempts failing, resulting delays and queues building up. This is all a nightmare for merchants and consumers. The only plus point seems to be the geek thrill they get out of using something new.

    On the other hand – Nintendo’s upcoming console, the Wii U, due for release in November, will have an NFC sensor embedded.

    Not sure what that is about, maybe Miyamoto has dreamed up some weird new gaming mechanic involving throwing your smart phone at the TV. Maybe they are just taking a punt on it. They have put hardware in consoles before which was never used. Since I’ve bought every Nintendo device ever released so far, and I’ll probably get this one too, it means I’ll soon have NFC in my living room. I’ll report back if my life gets significantly better.

     
  5. Peter Matthews

    Apple has shoved a spanner in the spokes of its competitors and network operator peers by not including NFC in its new iPhone 5.

    Which merchants are going to invest in expensive NFC point of sale kit now, when the biggest player isn’t playing ball?

    Everyone – except Apple – seems obsessed with the last inch when the real game is in finding a new digital payments platform that can disrupt banks and EMV. NFC has been around for years and got no-where. RFID works well in smart cards and transit, like Oyster and sQuid. Biometrics offer superior security and are already a reality.

    Could be a great strategic move by Apple…

    You can read more on this on our website

    http://www.nucleus.co.uk/thoughts.aspx

     
  6. Joe Bühler

    Great analysis. To me as a “semi-tech geek” the key phrase here is: “NFC was not mature enough to provide any real value proposition for the consumer” and I’m glad Apple thinks this way rather than throwing some feature out there that is not ready for prime time. Yes, this might disappoint a few “full-tech geeks” but hardly the tens of millions of people who will buy the iPhone despite the lack of this “killer” feature. The people who complain about this are likely the same ones who would knock Apple for disappointing battery life had the device NFC included! Personally, the iPhone 5 has been ordered.

     
    • Glenn Gruber

      Joe, thanks for the comment.

      Yes, I even read that Phil Schiller said that NFC was a technology searching for a problem. It makes me think of a comment I read a Russian Cosmonaut made on how Americans and Russians addressed certain problems differently. Both recognized that conventional pens wouldn’t work in space. So the American spent over $1M to develop the ‘astronaut pen’, a very elegant and expensive solution to the problem. The Russians? They used a pencil.

      In a nutshell that might be the NFC/barcode analog.

       
      • Joe Buhler

        You’re welcome, Glenn. I’ve read that U.S. – Russian analogy somewhere before. Very appropriate.

        The situation Mark describes is exactly the user experience Apple wouldn’t tolerate. Yes, even without having Steve around to make sure!

        I for one am glad they take that approach.

         
  7. Mark Lenahan

    I can’t comment on NFC as a pure authentication and identification technology. It seems apt to solutions where you want to identify and exchange small amounts of data (such as a unique ID) with a smart mobile device which may have a user interface to approve the data transfer. That is fine. I can see lots of applications involving turnstiles. But some of the hype surrounding NFC as a form of payment is ridiculous.

    For a form of payment to be broadly adopted four parties need to reach critical mass around a common inter-operable standard. Taking the terminology from the credit card industry:-
    * Issuers / Retail Banks – the bank that will provide the form of payment to the consumer
    * Card holders / consumers themselves
    * Merchants – the shops, restaurants, hotels, etc. that accept the form of payment
    * Payment Receivers / Merchant Banks – the bank where the merchant (the shop keeper) gets their money

    The critical mass issue is that there’s no point in a merchant accepting a form of payment until enough consumers want to use it. Likewise it is extremely inconvenient to a consumer holding a form of payment if a significant portion of merchants won’t accept it.

    Current funding model for credit card is that merchants pay commission, and this is split between issuers and receivers. It isn’t clear to me how Apple and Google are going to disrupt or wedge themselves into that. Certainly it won’t happen without a fight. Debit card commissions are already tiny (compared to credit card).

    The only way I see NFC taking off is if the banks (receiver/merchant) embed it into the POS systems by default (so merchant doesn’t have to do anything) and if the issuer banks embed it into credit cards (and maybe offer customers the option of having an NFC app on phone too). If the banks and existing networks (Visa, Mastercard) push it, it will work, but it is really just an identification/authorisation protocol (like chip and pin) that extends the underlying form of payment (credit / debit card). This will take time – look at how long chip and pin took to roll out.

    I wouldn’t hold your breath or worry about NFC in your current phone. No merchant is going to stop you buying coffee because you don’t have NFC! Maybe think about it for your next phone purchase (in 18 to 24 months).

     
    • Glenn Gruber

      Mark, thanks so much for your comment. You are right about the tipping point issue. But MC/Visa/Amex are making moves to get retailers to swap out old POS terminals for new ones that will accept NFC. But as pointed out in the article and echoed in your comment, this is a longer process. There have been some proclamations that if retailers don’t move to contactless payment cards (smart cards) with built in authentication, that they will attempt to shift the fraud risk from the card company to the retailer. The dates for this is 2016….so 2015 should be a busy year :)

      And again Europe and Asia are far ahead of the US in adoption of smart cards and contactless payments. Historically US card issuers have not pursued smart cards because the cost of the chip itself is several times the cost of a magstripe card and that increases the cost of issuance (and replacement) with little benefit. So they delay.

      We shall see how things progress. But I think many of the hockey stick projections were predicated on the iPhone adopting NFC. Now you’ll likely see the same projections next year…just with the years at the bottom changed.

       
 
 

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