iPhone 5: Why no NFC?

Slow adoption of NFC in U.S. means Apple was wise to wait, some experts say

Computerworld - Apple didn't include near field communication technology in the iPhone 5, a decision that one NFC backer said the company might come to regret.

But several mobile payment experts said Apple probably made a good choice for now, given the slow rollout of NFC, especially in the U.S.

Only 2% of merchants globally are equipped with NFC reader terminals; that's not nearly enough to merit Apple's attention, said Rick Oglesby, an analyst at Aite Group. "Apple would need something really global to make it work," he said.

Apple's critics included a U.K.-based communications marketing company called Proxama. "NFC is going to progress at a pace without Apple," said Miles Quitmann, managing director of Proxama, in a statement. "This could be Apple's loss."

Quitmann said many credit card companies and smartphone vendors have committed to NFC, spending millions of dollars on developing the technology. Proxama is working with Device Fidelity on an NFC battery sleeve that will allow an iPhone 5 to interact with NFC marketing tags embedded in posters and product packaging.

Instead of adding NFC to the iPhone, Apple decided to promote its Passbook mobile payment software, which runs on the new iPhone's iOS 6 mobile operating system.

Passbook relies on transmitting payment data via bar codes on the iPhone 5's 4-in. display, according to a video of Apple's iPhone launch (this information comes at around the 45-minute mark of the video).

"Passbook is the best way to collect all your passes in one place," said Scott Forstall, Apple's senior vice president of iOS software. He showed how an airline boarding pass, a Starbucks card, a football ticket and other forms of money-backed "passes" can be presented in bar code format to make a transaction.

Starbucks has been successfully using a similar bar-code scanning concept with its Starbucks card for more than a year, since it already had the optical bar-code scanners installed at pay stations in its stores. Starbucks officials said they wanted to get a mobile payments system up and running without having to wait for NFC chips to be widely deployed in smartphones.

NFC payment systems require special software or special payment terminals for communicating with NFC chips in smartphones, and some merchants have balked at adopting those technologies.

Explaining why the iPhone 5 does not include NFC, Apple senior vice president Phil Schiller told AllThingsD that "Passbook does the kinds of things customers need today."

Google Wallet, a mobile payment system that was launched a year ago, relies on NFC and can be used in several Android phones. Some Android phones, such as the Galaxy S III, only use the NFC chip to make quick data transfers between phones.

Isis, a consortium made up of wireless carriers AT&T, Verizon Wireless and T-Mobile USA, is planning to launch a mobile payment system based on NFC in Salt Lake City and Austin later this year. Isis defends NFC as the most scalable and secure of mobile payment approaches.

In addition to Oglesby, other analysts said Apple made the right choice not to include NFC in the iPhone 5, with one noting that the hardware would have taken up internal space when Apple was trying to make its thinnest and lightest iPhone to date.

"In a move to increase functionality in the device, clearly LTE was the first priority and more important than NFC right now," said Jack Gold, an analyst at J.Gold Associates. "NFC does take up space and resources in the phone, so they would have had to perhaps make the device somewhat thicker or have had less space for battery. Even though NFC is only a chip, it also requires an antenna that could interfere with others in a highly compact device."

Gold said there's no compelling reason for Apple to provide NFC at this time. "NFC has taken off very slowly and will likely take at least a couple more years to catch on," he added.

Carolina Milanesi, an analyst at Gartner, added that "consumers are not jumping up and down to get NFC right now." Noting that many Americans still write checks -- a payment method that predates credit cards -- she said, "You wonder how ready consumers are for mobile payments."

"There's no real pressure right now for delivering NFC," Milanesi added. "The ecosystem is far from ready from a payment perspective. This doesn't mean Apple is not interested in NFC. They will do it when they can take advantage of it and deliver a differentiated solution to users."