Editorial Policy

Will the iPhone 5 Pioneer NFC Credit Card Payments in the US?

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By Eva Norlyk Smith, Ph.D.
November 1, 2010

Techies are abuzz with expectations for the upcoming launch of the iPhone5, scheduled to be released as early as January 2011. At the center of the excitement are speculations that Apple may add Near Field Communication (NFC) credit card reading technology in the next iPhone generation. If the conjectures pan out, iPhone 5 users might soon be able to ‘wave and pay,’ using their mobile device as payment during checkout instead of a soon-to-be-so-last-generation credit card.

The idea of mobile phones doubling as credit cards has been around for a while. Credit card giants Visa and MasterCard International have experimented with the technology overseas for years. Discover Financial Services reportedly is exploring a cooperative venture with British-owned Barclays Bank and wireless carriers AT&T, Verizon, and T-Mobile to develop technology that will enable smart phone users to pay for purchases via their cell phone.

Further, while U.S. credit card companies are still in the explorative stages, paying with mobile devices is already commonplace in Japan and Korea. The mobile phones used by Japanese and Korean consumers are equipped with a wireless payment chip, which enables mobile phone users to pay for everything from movie tickets to groceries to meals at a restaurant with their cell phone. The U.K. is supposedly not far behind; mobile phones equipped with a special SIM card to enable mobile phone payments is expected to be available by the 2012 London Olympics. If the plan is carried out, it would be the first mass-market deployment of mobile phone ‘wave and pay’ technology outside of Asia.

The Near Field Communications (NFC) technology, which rumor has it is the main technology being considered for the eagerly anticipated iPhone 5, uses short-range wireless communications to transmit data from a mobile phone to a point-of-sale device within 3-4 inches distance. With NFC-enabled mobile phones, iPhone users would be able to simply wave their mobile before the cash register when checking out, instead of going through a slow and cumbersome swipe and sign.

If the new technology catches on, as it is expected to, it could soon turn cell phones into electronic wallets, making plastic—and cash—obsolete. In fact, representatives from credit card behemoths Visa Inc. and MasterCard International predict that mobile payment technologies will be game-changers. They are expected to not only replace debit and credit cards, but will potentially bring us the last step towards a cashless society by replacing coins and bills, even coupons and driver’s licenses.

The NFC-technology offers other benefits than credit card and debit card payments. The technology would enable mobile phone users to simply wave their phone in front of “smart” packaging, posters, or signs to automatically get access to electronic coupons, special discount notices, or even the weather report.

For credit card payment processing companies, like Visa, MasterCard, and Discover Financial, NFC-technology and other types of ‘wave and pay’ technologies are potentially a match made in heaven. Credit card companies stand to collect processing fees on purchases that currently typically are being made in cash, like small purchases at convenience stores, coffee shops, and so on.

For credit card-issuing banks without access to a mobile phone network, the move towards NFC-technology could prove challenging. They will be facing competition from wireless carriers, who are able to adopt the NFC mobile payment system far faster and more easily. So, banks may end up scrambling to enter into cooperative alliances with wireless carries, like the recent instance of the rumored alliance between Barclay’s, Discover, AT&T, Verizon, and T-Mobile. For those who do not, the arrival of NFC-enabled mobile phones could possibly herald not only the end of cash, but the end of their lucrative debit and credit card business as well.

All of this, of course, presupposes that American consumers will adopt the new ‘wave and pay’ technology. However, if the popularity of mobile phones in general and all-things-Apple in particular are any indication, consumer adaptation might well happen faster than you can say “swipe.”