Will Apple's New iPhone Mean Last Rites for Mobile Payments?

This Year's Announcement Could Make or Break the Dream of Swiping to Pay

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The excitement is building, as it always does, for Apple's annual iPhone announcement. Rumors abound about the iPhone 5S and 5C. But beyond the usual hardware upgrades, OS details and new firmware apps, 2013's announcement has a lot more at stake -- the future of mobile payments.

The dream of mobile payments – walking into any store and paying for your purchases by swiping your phone at the checkout – is in danger of evaporating, and it's Apple that is about to flick the switch.

Mobile payments have for a number of years been cohering around NFC (Near Field Communication), the standard now embedded in tens of millions of credit cards and mobile phones around the world. Phone manufacturers, payment providers, retail terminal equippers and mobile carriers all have advanced plans for NFC and viable products in market. Google has delivered over 5 million downloads of its Wallet product. Berg Insights predicts NFC-enabled retail terminals to reach 82% of all units in North America by 2017. Samsung has embedded NFC in all its high-end phones for some years.

Everything is in place to make the dream of paying through your mobile a reality for the mass-market consumer. But still it fails to take off, and here's where the finger points at Apple.

Successive releases of the iPhone have failed to include an NFC chip -- the hardware component to make iPhone compatible with the rest of the mobile-payment infrastructure. If Apple again fails to include NFC in this new release, then confidence in NFC, already faltering, will start to plummet, with the knowledge that mass uptake of mobile payments is now delayed for yet another year. Already we are starting to see downward trends in expectations of mobile ticketing and other NFC-based services.

Why is Apple so important in this field? Making a payment on a mobile device requires a fundamental change in customer behavior. Apple, with its unique combination of early-adopter demographic and brilliant product design, is proven as the only player that can galvanize an entire market into this kind of change. Mobile games and apps had been around for a long time before the App Store came along, but it took Apple to provide the necessary injection of brilliance to make it mainstream.

Ironically, Apple has a crucial advantage in mobile payment. With hundreds of thousands of credit cards already stored in iTunes, it should be relatively simple to find a seamless way to move the same payment credentials into a mobile wallet, and as a side benefit that would surely be appreciated at Apple's Cupertino, Calif., headquarters, squash years of work from Google in the process. This would, though, mark a significant strategic shift for iTunes, which has always used its payment channel to impose a heavy revenue share on items sold through it -- and this model would never work with in the highly competitive retail payment environment.

Should Apple again fail to inject that vital spark into the market that would make mobile payments "cool," the lack of consumer uptake will render the entire ecosystem a failure. Already Google's $300-million investment in Google Wallet is being widely dubbed a write-off, with its senior executives bailing in rapid succession.

Why would Apple want to cause this wholesale failure in mobile payments?

The answer lies in the differing philosophies between Apple and, say, Google or Samsung. While Google and Samsung want to cram their phones with features that make their devices more useful and integrated into their users' lives, Apple only wants to play in areas where it can own the entire ecosystem. Payment depends on an unshakeable symbiosis between retailers, acquiring banks, payment providers and credit-card schemes, leaving Apple just a bit-part player along with any other new entrant.

Of new digital players in payment, only Square (as a payment processor) and PayPal (for online payments) have been able to make any type of mark, and they now firmly own the niches they have occupied.

To put it crudely, Apple is stating that if it can't dictate the rules of the game, then it's taking its ball back and going home.

My prediction is that we will see this disastrous scenario played out over the next couple of weeks, with mobile payments continuing their failure to launch for the foreseeable future.

The only choice left is for retailers to go it alone. Starbucks foresaw this eventuality some time ago and its in-house mobile payment system now records 4.5 million transactions per week. But few retailers command Starbucks' blend of loyalty and frequency of purchase – both essential to make this kind of investment pay off.

Nearly everywhere else, we are likely to be stuck with credit-card checkout for a very long time.

Tim Dunn is director of mobile at Roundarch Isobar.
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