- For years NFC technology has promised to break through into the mainstream.
- It hasn't, however, due primarily to Apple not integrating the technology into its phones, something which two new research reports suggest will soon change.
- If NFC adoption does pick up, as is expected, it will have consequences spanning across multiple industries, with Apple, the company that brought about the change, at the center.
For years mobile payments have been championed as the future. Over recent years, however, a particular technology in mobile payments called near-field communication (NFC) has fallen out of the limelight.
NFC technology allows a cell phone to securely transmit and receive payment information. No card, no swiping, just a smartphone and your finger.
Google (NASDAQ:GOOG) (NASDAQ:GOOGL) was among one of the first adopters of the technology. In 2011, the company introduced Google Wallet, an app that enables NFC payments. Even before that, in 2010, AT&T (NYSE: T), T-Mobile (NYSE: TMUS) and Verizon (NYSE: VZ) had announced Isis, another NFC-based payment system. More recently, a consortium of 30-plus retailers, including Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and CVS (NYSE: CVS), have announced the roll-out of their Merchant Customer Exchange (MCX) in a pilot test later this year.
While NFC certainly has had some big backers, the adoption of the technology simply hasn't lived up to expectations. In 2013, a mere 2% of total global mobile transactions ($235 billion in all) was linked to the utilization of NFC technology.
Why? Long answer short, because Apple (NASDAQ: AAPL) hasn't yet integrated NFC technology into its operating platform. That could soon all change, however, as some recent research reports by Morgan Stanley and Pacific Crest point out.
A Game-Changer: iPhone 6 to Contain NFC Technology
Morgan Stanley and Pacific Crest both have recently released research reports suggesting that Apple is building closer ties with credit card companies Visa (NYSE: V), MasterCard (NYSE: MA) and American Express (NYSE: AXP) as it prepares to make a move into the mobile payments market with the launch of the company's iPhone 6 this fall.
What makes this so significant, both reports argue, is the power of Apple's 600 million worldwide iTunes user database already linked to credit card accounts.
The Consequences of This Will Be Far-Reaching
For Apple, this is going to be a win-win. Not only is this going to increase the attractiveness of Apple's iPhone 6 to potential customers, it's also going to provide another channel through which the company can make money off of its iTunes users, as if the $16 billion generated by iTunes in 2013 wasn't enough.
For the credit card companies (Visa, MasterCard and American Express) this, too, will be a win, but to a much slighter degree. At the end of the day, whether we use a card or a smartphone, the majority of transactions will still go through one of them. The one that will benefit the most will be the one that can grow their NFC base the fastest. So far, Visa and MasterCard have both launched NFC payment technology (Visa with PayWave and MasterCard with PayPass), while American Express has hung back and remained doubtful of the technology's attractiveness to consumers.
On the flip side is eBay (NASDAQ: EBAY), which both reports point to as a potential loser in this scenario. Apple entering the ring of mobile payments will mean an increase in competition for PayPal, a segment of eBay's overall business that has been a key growth driver (in eBay's most recent quarter PayPal achieved double-digit customer growth).
Some say it has been a long time coming for Apple to adopt NFC technology into its phones, and in just a couple months this is likely to finally be the case. While this technology has been around for almost a decade, it hasn't really caught on, something which is sure to change if Apple adopts it.
While this certainly will be a step in the right direction for Apple, in the grand scheme of things, it will be a small step. Nonetheless, I view it as an effective, calculated step by management. Apple certainly hasn't jumped on every "ground-breaking technology" that has rolled around over the years, but the ones it has embraced and incorporated into its devices often have been accepted by customers because of Apple's tendency to keep things simple. This "simple" factor will be key in getting users to actually use the new technology, as remember it has been on some Android and Windows phones for years.
As Apple urges people to embrace this technology, they very likely will, and thus increasingly will change how we pay for things every day. By 2017, Gartner expects 5% of all mobile payment transactions to utilize NFC technology, but that was before these two new reports. Now, with Apple's iPhone 6 on board, I can conceivably see 10%-20% of all mobile transactions using NFC technology by 2017, a market which, by then, is expected to reach $721 billion in total transaction value.
If my projections are accurate, a massive opportunity will be presented for those companies ready to embrace the technology, leaving Apple, Visa, and MasterCard in the driver's seat.