Apple's next iPhone and iPad may be poised to include a near field communication payment system, but the payment option will still face some big challenges ahead.
Analysts, in a report by Bloomberg, are speculating that Apple will embed an NFC chip in its next generation of the devices, allowing users to pay with their handsets instead of credit cards at retail stores. One analyst, Richard Doherty of Envisioneering Group, said Apple has already created a prototype NFC terminal that it may subsidize or give away to businesses.
Apple's backing would certainly give near field communication payments a shot in the arm, but there's much more work to be done. Here are several things NFC phone payments need to address before entering the mainstream:
Credit card coordination: Apple reportedly wants to tie retail purchases to iTunes instead of a credit card. That way, Apple could handle more of the transaction and perhaps collect a processing fee for customers who link iTunes directly to their bank accounts. That sounds lovely for Apple, but in the short term, NFC phones should work with existing swipeless payment systems from credit card companies, such as MasterCard Paypass. Why reinvent the wheel?
Incentive: If Apple does eventually hope to create its own retail payment system, separate from credit cards, it'll need good reasons for its existence. Bloomberg reports that loyalty programs will be part of the package for consumers, but what about retailers? Apple may have to create additional incentives, like the information tags Google is distributing to businesses in Portland, Ore., as part of its NFC pilot program. Users can scan these tags to get more information about the business, potentially leading to more sales.
Multiplatform support: One of the nice things about credit cards is how a single card reader supports Visa, MasterCard, Discover and other providers. Apple isn't the only phone maker pursuing NFC -- Google and Nokia are also including chips in their phones -- so Apple may have to share its payment terminals if it wants all boats to float. A litany of payment terminals at the checkout register will confuse and turn off customers.
Time: While Apple's and Google's involvement would be huge for near field communications, try to keep it in perspective. For now, we're looking at two phones from major handset makers, compared to roughly 180 million credit card holders in the United States. The potential market for NFC payments simply needs time to grow, as more consumers adopt smartphones that include the technology. Apple may strike a few big partnerships, but don't expect retailers to embrace NFC overnight.