NFC could debut in next iPhone, even as Google pulls back

Some still see no advantage for Apple to include NFC as merchant acceptance is slow in the U.S.

Mobile payments based on NFC chips inside smartphones have faced slow growth in the U.S., but some analysts predict that the upcoming iPhone 5S expected in September will include NFC technology after years of restraint by Apple.

If so, Apple's gradual move toward NFC (near-field communication) to complement its existing Passbook application would come at the same time that Google somewhat retreated on NFC.

In a recent email to Google Wallet users, Google said it will end NFC redemption of gift and loyalty cards added to Google Wallet on Aug. 21. Google said its announcement does not affect NFC credit and debit card payments and added that it is working with retailers on other options for gift and loyalty cards.

In an unrelated move toward NFC adoption, Isis, an NFC-based mobile wallet joint venture of three U.S. wireless carriers, last month said it would roll out its mobile wallet to the entire nation later this year, following testing in two cities. The Isis mobile payment app is supported by 35 NFC-ready smartphone models, mostly based on Android, that are sold by the three carriers -- AT&T, Verizon Wireless and T-Mobile US.

One analyst who said the next iPhone will include NFC also said there's a small possibility that Google's recent statements indicate it could completely abandon NFC for mobile payments in the next few years.

"Nobody would be surprised if Google did away with NFC support," said Yankee Group analyst Jordan McKee, in an interview. "They're a little bit scared of it." While McKee is a proponent of NFC for mobile payments, he wrote in a blog that NFC adoption in the U.S. for mobile point-of-sale payments remains "negligible," adding that "any payment method based on the technology will continue to clutch at straws."

McKee said if Apple puts NFC in the next iPhone, "it will be interesting to see what avenue Apple takes with it, and I hope it's not proprietary and limits the function of NFC and the growing momentum toward it." Apple's use of QR scanning with its current iPhones to support its Passbook app for redemption of loyalty and gift has resonated well with both merchants and consumers, he said.

In fact, barcode scanning and QR code scanning using smartphones have worked well for Starbucks and others, which could well be a future direction for Google instead of NFC, analysts said.

Ezra Gottheil, analyst at Technology Business Research, also said he expects the next iPhone, possibly called the iPhone 5S, to have NFC. "As a payments system, NFC suffers from a chicken-egg problem, but Apple may be able to persuade specific verticals, like airlines, to deploy NFC for faster boarding," Gottheil said.

However, two other analysts contacted by Computerworld said they have doubts that Apple will put NFC in the next iPhone.

"NFC is not that important to Apple, as they have other proprietary payment options," said Jack Gold, an analyst at J. Gold Associates. "NFC is not taking off very quickly, so there is no real pressure on Apple to include this functionality, at least in this round of products."

Apple is also widely expected to include a fingerprint reader chip in the next iPhone, which could be used to complement NFC for security. Or, Apple could focus on the fingerprint chip and leave out NFC, Gold said.

Patrick Moorhead, an analyst at Moor Insights & Strategy was more emphatic in his prediction there won't be NFC in either the expected iPhone 5S or the iPhone 5C. "I don't expect the 5S or 5C to have NFC because I don't think Apple knows how to control it or make money on it," Moorhead said. "There's an outside chance the 5S would have it, at least for Apple to say they have it."

Yankee Group forecasts NFC-based transactions in the U.S. will grow from $166 million in 2013 to $2.3 billion in 2017, aided by merchants moving to NFC-ready payment terminals inside stores. That's still just a fraction of the global NFC payments for 2013 of $60 billion that Yankee Group has projected.

A turning point in the U.S. toward NFC will come in October 2015, when merchants must either upgrade their terminals to accept what's known as the EMV (Europay, MasterCard, Visa) smart chip card or accept liability for any fraudulent transactions that occur at terminals that are not upgraded, Yankee Group said. Those EMV terminals will accept most if not all NFC payments, McKee said.

"NFC at the point of sale is stagnant for now in the U.S. and will remain that way until EMV terminals arrive," McKee said "Right now, one of the biggest roadblocks is merchant acceptance."

McKee said it is unclear how successful Isis will be with a national rollout this year, partly because its results from trials in Salt Lake City and Austin haven't included many details. While Isis confirmed it has 4,000 retailers supporting Isis in those two cities, it has never disclosed how many actual customers are using Isis-ready smartphones to make NFC transactions at those merchants, he noted.

This article, NFC could debut in next iPhone, even as Google pulls back, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

Read more about mobile payments in Computerworld's Mobile Payments Topic Center.

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