Editorial Policy

With iPhone 5, Apple chooses its own mobile payments path

Kristin McGrath

September 14, 2012

The past two years have seen an explosion in apps and digital wallets promising that, in the very near future, your phone will replace your wallet. Yet with so many options for smartphones and digital wallet apps (which don’t necessarily work on all phones), a clear frontrunner has yet to emerge.

So payments industry experts eagerly awaited Apple’s iPhone 5 announcement this week. One of the biggest questions: Would the iPhone 5 side with near field communications (NFC), as had been rumored?

Already standard on many newer Android phone models, NFC is the technology behind Google Wallet and mobile payment up-and-comer Isis. It allows an NFC-enabled mobile device to communicate with special payment terminals. Users link their debit and credit cards to a digital wallet and then simply tap the phone on a payment terminal to complete transactions.

Of course, NFC isn’t the only way to make mobile payments. Some mobile apps, like Square, for example, rely on GPS to let users check in at a businesses and open up a tab. Yet NFC has been touted as a particularly seamless way for consumers to move their real wallets to their phones — even though it’s having a tough time reaching critical mass for both consumers and businesses (which have to upgrade their equipment to use it).

By including an NFC-enabled chip in the iPhone 5, Apple could have propelled NFC into mainstream use.

But it didn’t. There’s no NFC chip in iPhone 5’s thin physique.

For Apple’s part, NFC seems to be of little concern. Instead, Apple is using the iPhone 5 to push its own mobile app called Passbook (see the screenshot from an Apple demo to the right). In an interview with AllThingsD, Apple Senior VP Phil Schiller expressed doubt that NFC holds any overwhelming benefits for businesses and consumers. Passbook, Schiller said, “does the kinds of things customers need today” without requiring merchants to replace their payment terminals with ones that read NFC chips.

Passbook isn’t technically a full-fledged digital wallet, as you can’t use it to store payment cards. What it does do is store loyalty cards, gift cards, coupons, tickets and boarding passes. Merchants can tie their coupons to their locations. When the phone’s GPS technology recognizes that the consumer is near the place the offer can be redeemed, it will remind the consumer, via push notification, about the coupon.

Passbook will be available to iPhone users who have Apple’s latest operating system, iOS 6. The iPhone 5, when released Sept. 21, will have iOS 6, and anyone with an older iPhone can download iOS 6 Sept. 19.

While some critics argue that NFC would perfectly complement Passbook (users would be able to use a coupon and pay with their phones), others point out that NFC technology isn’t yet widely used enough for Apple to make room for it in the iPhone 5’s slim design.

With technology and personal finance in mind, here are some of the best posts from around the blogosphere this week:

SlashGear explains why the iPhone 5 doesn’t really need NFC after all.

ZDNet argues Apple’s decision to snub NFC will hold it back as the mobile payment industry grows.

MobilePaymentsToday describes how mobile payments prevent fraud.

Wired explores how Passbook could make mobile payments go mainstream.

Recombu takes a closer look at Passbook.

TechCrunch comments on how crowded the mobile payments field is getting.