NFC Payments Could Turn iPhone and iPad into 'iWallet'

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The United States has been slow to adopt the concept of near-field communications (NFC) technology or the idea of using a mobile phone as a method of payment, but it is gradually catching on. New reports suggest that the next-generation iPad and iPhone will be equipped with NFC capabilities, enabling you to use your iOS device to make purchases.

A story from Bloomberg cites sources indicating that Apple is building the NFC technology into the iPad 2 and iPhone 5. It also reports that Apple is working on the payment infrastructure behind the scenes necessary for actually making payments with an iOS device.

Starbucks recently rolled out a system allowing patrons to make purchases using an iPhone. However, the Starbucks approach is proprietary and does not use NFC. Starbucks connects an iPhone app with a funded Starbucks card and allows customers to pay by scanning a bar code image from the iPhone display. Still quite handy--but not as much as true, widespread NFC adoption.

Building the NFC capabilities into the iPhone or iPad is only half the battle, though--maybe less. Google already has an NFC-capable Android smartphone with the Nexus S, yet that hasn't seemed to spark any sort of contactless payment revolution just yet.There are two more critical pieces of the contactless payment puzzle that must also be in place in order for the NFC technology to have any real-world value.

First, there has to be a creditor backing the NFC payment. The device has to be connected with a bank account, or a credit card, or with some sort of wireless carrier-backed system that actually funds the transactions.

Second, merchants have to be onboard with the concept. For example, there are already many credit and debit cards equipped with contactless swiping functionality, but very few vendors that have the hardware to support it. Having an NFC smartphone without merchant support is like having a Flex Fuel vehicle without any gas stations that actually offer the E85 fuel to take advantage of it.

The idea of mobile phone as method of payment is not least not outside of the United States. In April of 2009 Nokia and Visa teamed up to introduce contactless-payments in Malaysia. An NFC-equipped Nokia mobile phone is backed by the Visa payment system, and is accepted at more than 1,800 locations.

If Apple ties the NFC devices in with iTunes as the payment system--relying on the credit card details on record with iTunes to fund to the transactions, then all that is left is to get support from retailers. If Apple provides the necessary hardware for free, or offers some sort of subsidy to drive adoption and get the concept off the ground, it could catch on.

I would expect retailers to want to embrace this concept. Why wouldn't you want to provide potential customers with every means possible of sharing their hard-earned money with your business? The only thing I can see getting in the way of adoption is if the merchant transaction fees are too high to make it worth it.

So, now I would no longer need to carry my wallet. If I just get one of those Viper SmartStart systems that let me unlock and start my car with an iPhone app, I won't have to carry keys either.

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