mGage Blog

Apple Product with NFC

Apple is incorporating NFC into the iPhone 6. Why is this newsworthy?

The technology has been around for some time and whilst it’s becoming more common to pay using NFC/ contactless payment, NFC roll-out has been considered a limited success in many quarters.

Attempts by brands to create a mobile wallet – a mobile application where users are willing to store their payment details and to use the app as their trusted instrument of payment in a retail environment, have largely fallen flat.

Mobile wallet initiatives from the likes of Google with their Wallet product, major US carriers (Verizon, AT&T and T-Mobile’s formerly named ISIS – now Softcall) and Telefonica (O2 Wallet) have all had very limited success, struggling to get consumer adoption and in some cases totally discontinued after significant investment.

So why will Apple be successful in what appears such a difficult market? The fundamental difference between Apple and others that have tried to gain market share in mobile payments relates to the sign-up process. Apple has 800 million signed-up mobile wallet customers on day one, which removes a key barrier to consumer adoption – payment friction. Apple users all have iTunes account and a registered card to fund payment.

So whilst the competition have needed to get their customers to sign up for a wallet and then link that to a card to fund payment (very high friction), Apple doesn’t need to do anything beyond let existing customers with a new iPhone know that their existing service can now be used to make in-store payments. Despite high marketing budgets, the challenge of getting users to register has in some cases proved insurmountable.

Apple’s support for NFC will, in turn, trigger greater investment in point of sale equipment in-store, as retailers see a greater opportunity to accept contactless payment from a much larger base of users.

In terms of monetisation, the data Apple will glean from supporting a mobile wallet (understanding transaction histories) will create a large new revenue stream from third party contextual advertising to Apple’s users based on their purchasing habits – a revenue stream already suggested to be as high as $900 per user per annum.

What will be interesting to see is how Apple ties this in with Passbook – linking coupons and offers with payments. That is, how will they incentivise their customers to use their mobile wallet in-store, beyond the benefit of being simple to pay? After all, there’s nothing fundamentally wrong with using the NFC chip in your credit card and making a payment that way. Whilst they will inevitably get some adoption, the opportunity exists to get significant volumes of active users in this market if they can combine this simplicity of payment with a valuable loyalty and rewards programme.

Once you throw in the potential of iBeacon technology to provide precision marketing and offers within stores to wallet users, Apple seems set to differentiate again by providing a peerless customer experience.

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