Analysts look to Apple for next mobile payment milestone
My apologies that this topic has dominated the editorial twice in a row now but once again social media has been inundated with more rumours, half whispers and innuendos concerning that consumer hardware powerhouse that is Apple. "The iPhone 6," they whisper, "Definitely going to have NFC and a complete iWallet onboard. This time - for sure. No, really. Really. REALLY!" We get this every year around this time. So far all the rumours have led to a massive disappointment and a feeling of emptiness (please say that it's not just me). This time though, it isn't fanboys who are driving the rumour mill. No, its more 'grown-up' sources who are throwing their hats into the ring. And that, despite any hard evidence, has made Apple owners believe again.
It's also pushed up a lot of forecasted figures. Mainly due to credible sources such as Morgan Stanley. The investment firm believes that Apple will finally embrace NFC technology through a platform called iWallet. As most of our readers are aware, so far Apple has relied upon a combination of wireless and BLE (around the iBeacon specifications). Apple have piloted the technology in a number of its own stores. Morgan Stanley believes that this time though, Apple will actually go one step further and integrate an NFC chip into the new iPhone, making it, as Analyst Craig Hettenbach is reported to have said, "A core part of its mobile payment strategy".
Bottom line is that after many years of ignoring the technology for a variety of reason, Apple may really go for it this time. A few weeks ago it was reported that Apple had reached an agreement with China UnionPay, a Chinese interbank network. The two companies were said to be working together on NFC payments, suggesting the technology might come to a future iPhone. If Apple does in fact adopt NFC technology, Hettenbach expects the company will go with a standalone NFC controller for its future iPhones.
Other sources have pointed to NXP and their NFC offering as the likely source of the chip. NXP already supplied Apple with the M7 motion-sensing chip found in the iPhone 5s would likely provide Apple all the necessary wireless hardware. “NXP is well positioned to participate in Apple’s mobile payments ecosystem. The company signed a licensing agreement with a customer in Q4 ’13, who we believe is Apple, related to its emerging ID business. A recent patent filing by Apple revealed potential use of NFC and secure element, which we think could be embedded. NXP has also accelerated R&D spend to support a new program related to the IP deal, with revenue expected in 2H, lining up well with the launch of iPhone 6. We see this potentially adding $250M in sales and EPS of $0.25 in 2015,” Morgan Stanley said in their report.
As always, when talking about the mobile wallet, there are arguments out there concerning security; either an embedded secure element on the phone keeping confidential data within the hardware or the recently announced HCE. This cloud-based method would allow Apple to circumvent carriers, who in the past have (reportedly) blocked mobile payment features such as Google Wallet. The website, Apple Insider, reported further on this particular issue by adding; "Given Apple's focus on security, Morgan Stanley's Craig Hettenbach suspects Apple will go with the embedded route, relying on a stacked NFC radio and embedded secure element solution. And given its large user bace and clout with carriers due to iPhone sales, he believes Apple might be able to bypass the carrier 'logjam' and gain approval for its mobile payments system". The question of security has become one of the prime factors in mobile wallet adoption with the market reacting very unfavourably to any mobile wallet development company who doesn't take it seriously enough. LifeLock pulled its Wallet from mobile application marketplaces a few weeks ago because the company found certain aspects may not be fully compliant with Payment Card Industry security standards. (LifeLock had introduced the Wallet service when it acquired Lemon in December). Although Apple may be a different animal - it should take heed of the market it may finds itself in.
News such as this is also being picked up on by research companies as evidence that the mobile wallet is going to take off very soon. A new report from Juniper Research has found that 1 in 5 mobile handsets will have mobile wallet functionality by 2018, against less than 1 in 10 at the end of last year. The report says that wallet launches across North America and Western Europe are increasingly expected to feature contactless payment functionality. The sector is forecast to receive a boost both from the anticipated launch of an Apple iWallet later this year and through HCE (Host Card Emulation)-based NFC (Near Field Communications) services. According to the report, more than 1 in 3 mobile wallets – and over 50% of wallets in developed markets – will featuring contactless payment by 2018.
Morgan Stanley is not the first to report their view that Apple was is to incorporate NFC this iPhone iteration. If you remember, KGI Securities analyst Ming-Chi Kuo also said in his predictions that Apple will be building NFC chips for the iPhone 6. Perhaps the time has come for Apple to take the plunge. Apple CEO Tim Cook certainly thinks so. Earlier this year he was reported having said during an earnings conference call, "The mobile payments area in general is one that we’ve been intrigued with. That was one of the thoughts behind Touch ID, but we’re not limiting ourselves just to that. So I don’t have anything specific to announce today. But you can tell by looking at the demographics of our customers, and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity on the platform." As we know, Apple has almost laser focus when it come to ideas (a quote attributed to Steve Jobs goes, "Focus is saying 'no' to 1000 good ideas") and applications - engineers working departments concerning themselves with NFC, iWallets and mobile payments just may have found that Apple's gaze is now directly focused upon them.*
And finally, to lighten the already heady mood. One of my favourite reads last week by Daniel Wolff writing for Payments Source was a piece titled 'The shame of being an early mobile wallet user'. Moral of the story: always have your app unlocked before you pay, otherwise, as Daniel points out, "To the cashier, it looked like I was some jerk holding up the line by playing Candy Crush on my phone when I should have been swiping my card".
Until next week.
* Caveat: Just to reiterate - there is absolutely no hard evidence of Apple's intended move on the iWallet or NFC-based payments. Just so we both understand each other… Everyone will have to wait until June 2nd at the Apple WWDC to really find out more.
Steve Atkins
Contactless Intelligence
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