Brett King

Posts Tagged ‘iPhone 5’

So what if Apple delays NFC?

In Mobile Banking, Technology Innovation on March 14, 2011 at 16:36

There’s rumours flying around about Apple possibly pulling out of their previous NFC (Near-Field Communications) launch commitment for the iPhone 5. Of course, Apple has neither substantiated or denied these rumours. However, I can already hear a collective sigh of relief from many of the card product teams globally who now think they have another year before having to worry about NFC. If, and that’s a big if…if Apple does decide to delay NFC does it really change anything?

Firstly, a delay is not cancelling their intention to deploy a strong mobile payment platform. Secondly, a delay in Apple launching NFC doesn’t change the fact that Google, Nokia, Samsung and a bunch of others have already deployed NFC capable phones and that increasingly NFC capable POS are fast becoming ubiquitous. Thirdly, it’s not like the outcome is going to be any different in 3 years time.

Apple is still massively committed to NFC as a strategy. They’ve created a world-class team led by Benjamin Vigier, they have a ton of patents around mobile payments with NFC integrated into the experience, their iPhone platform has been designed with this capability in mind, and they’ve been busy buying up NFC chipsets. If you think they are walking away from NFC, then whatever you’re smoking is some pretty potent stuff.

The fact is, if your business is based on plastic credit or debit cards – it is just a matter of time before you are going to have your Encyclopedia Brittanica, Blockbuster, Borders, Newspaper, Video Casette, CD-Rom moment. That is, payments modality will change not because of an Apple iPhone, but because the mobile phone as a device is just too ubiquitous and too easy to use as a payments device. Whether it is NFC, P2P, Square or other emerging mobile-based payments technology, the mobile phone is still going to be the future of payment interactions.

The need for standards
In Japan and South Korea, they’ve been running NFC payments networks and technology since 2001. So right now today, you could argue the US and the EU are 10 years behind in respect to this capability. Now admittedly in Japan SUICA and FeLiCa are two separate standards, but this hasn’t held up adoption. In South Korea they didn’t bother with a competitive approach, they just got all the parties together and demanded a standard. The thing is in both South Korea and Japan, the carriers, the banks, the regulators all worked together for the greater good.

I just don’t see this happening in a location like the US. Admittedly in the EU there is probably more of a framework for having a standard, but the worst thing for NFC is the likelihood of a whole cabal of different players who want to ‘own’ the standard. You can’t incentivize people to cooperate unless they understand how they’re going to make money, and with interchange under threat in multiple markets, then the most obvious revenue stream around NFC mobile payments is no longer considered the potential cash cow it once could have been.

But none of that really matters. It still won’t stop NFC, P2P, smartphone or mobile adoption rates in any appreciable way.

One of the most intelligent things I heard in respect to the Apple NFC rumour (which incidentally I think is probably an Apple Black Ops false flag operation) was from David Birch from Consult Hyperion. When we were discussing whether the rumor was true he said:

“Not sure. If it is true, this gives Google a real opportunity…”

Right now Google has the phone and the Android OS platform capability to deploy NFC payments, they just need the App(s), the wallet and the integrated payment network. I would hedge my bets that they’re pretty close to doing that.

So at the end of the day – whether the iPhone 5 does or doesn’t have NFC – it doesn’t mean NFC is no longer viable, and doesn’t mean the phone won’t be the most disruptive device in payments and banking ever!


Banks and Credit Card Issuers beware – Apple just stole your business

In Customer Experience, Mobile Banking, Retail Banking, Technology Innovation on October 17, 2010 at 23:01

200 individuals were the first to receive credit cards issued by Diners Club in 1950, the brainchild of Frank McNamara. It was the start of a completely new era in personal credit and payments. American Express entered the credit business with its own card in 1958, within five years had issued more than a million cards.

Today there are more than 1.6 Billion credit cards in circulation, and the US credit cards industry generates $2.8 Billion dollars a year in revenue. One in 12 households in London (or 8 per cent) have used credit cards to pay their mortgage or rent in the last 12 months and outstanding credit card balances stood at £63.5 billion in November 2009. By 2013, China’s consumer credit market—encompassing credit cards, mortgages, and other personal loans—will account for 14 percent of profits in the banking sector.

Growth in Contactless Technologies

In recent times we’ve seen the move to NFC or Near-Field Contactless credit cards. It is estimated that NFC enabled credit cards will reach the tipping point in 2011, with a total of 30 million British contactless bank cards alone being issued by then. The ease of use of an NFC-enabled card is obvious, no swiping, no inserting. Steve Perry from Visa Europe said that the rising popularity of contactless technology brings the promise of a cashless society where there is no longer any need for people to carry notes and coins around with them.

“Contactless is as revolutionary as the shift to internet payments was five years ago. It will mean having no notes and coins – it will certainly mean having no coins. It will move us almost to a cashless society.” – Steve Perry, Visa Europe

But as the modality shifts toward NFC, the reality is that the physical card itself does not represent a competitive advantage or differentiation for banks or issuers, not that it does today. Once the move to NFC-enabled POS terminals is ubiquitous, it’s probably easier just to carry your phone to make payments than a gaggle of credit and debit cards. That’s not going to happen overnight though right? Cards as a product are still too strong to be replaced by mobile quickly, so we have plenty of time right?

It will happen quick…

WRONG. We know that Apple is working on an NFC-enabled phone, and given their recent hires in the space, it is assumed that the iPhone 5 will be the platform for this change. So how will Apple’s NFC-enabled iPhone 5 work? We know a few things about the likely capability of the phone based on the patents issued by Apple. Firstly, the payment application will be a core app integrated into the phone, there will be a biometric strip (presumably enabling fingerprint authentication) and the phone will ostensibly work just like an EMV-chip credit card.

Some of the detail of Apple's NFC patent for the iPhone

The question you are probably asking is, how will the payment mechanism work? Here’s where it is largely speculation because Apple is being extremely tight lipped. We know that the primary payment app will work as an interface to your bank or credit card company as you need it to. However, it doesn’t take a rocket scientist to work out that Apple could use its current iTunes store platform to provide stored value for an effective debit card mechanism. If Apple was to use this mechanism as the underlying currency or stored value behind their core ‘debit card’ equivalent payment capability, they would effectively become a bank overnight, and one with perhaps an even stronger differentiation than any other debit card on the market today. Other handset manufacturers and mobile platform providers would be sure to follow as Apple’s payment capability quickly becomes ubiquitous. That is, if the payment networks talk to Apple’s iTunes store…

Competing with Apple, Google and Microsoft Mobile

So how will banks compete in such an environment? Well banks can’t issue their own mobile phones like Apple or Google’s partners can, and plastic cards and checks look downright archaic in comparison to such a payment paradigm. The only choice of Card issuers and banks would be to embrace the new technology and scramble to partner with the handset manufacturers and mobile OS owners. Visa has already deployed their Visa Paywave solution on the iPhone, but currently you need a cradle or sleeve that the iPhone sits in to do the sexy NFC bit, that simply won’t be necessary on the new device.

So the question for banks in this new environment would be how do we now issue cards to customers? Do they have to come into the branch for us to configure their phone? Given how easy it is to upload iTunes credit, this would be a huge competitive disadvantage, so the compliance procedures applied to the current physical process of card issuance become a millstone around the bank’s neck and result in rapid disintermediation. Within the space of 3-5 years, banks no longer have a credit card business. Sure, they might eek out a small business settling payments between Apple’s iTunes store and the bank, but compared with the size of the card business today this would be miniscule.

Challenges Ahead for Banks

What about if a customer could download a new “credit card” from the iTunes’ App store, or from Google’s Marketplace? Well how would you qualify for the card as a customer, are there different card apps for each bank, what is the onboarding and risk assessment process?

Don’t be tempted to think that the protection of existing payments networks or a bank license will protect your existing business from such innovation. If Apple does launch their NFC phone and announces collaboration through Visa and Mastercard’s payment network, do you honestly think with millions of iPhone 5’s going out the door that the regulator is going to call a halt to payments from a phone?

Seriously, if you are a bank, it’s likely that in just 8-9 months you’ll be faced with competition from non-banks who can do the whole NFC-enabled phone payments thing much faster, easier and more compelling than you ever could by issuing a plastic debit or credit card. And guess what?

If you’re the CEO of a bank, you probably don’t even have someone appointed to work on mobile credit card onboarding yet, so what’s the likelihood you’ll be ready to compete?

Let’s try plan B – let’s go to the regulators and see if we can stop mobile phone payments as a mechanism shall we?