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iPhone 5 NFC Mobile Payment Speculation Reignited by Apple Boku Acquisition Rumors

2010 November 4
by David Eads
Mobile Payments NFC iPhone

Mobile payments could use phones as a PIN authorization pads making transactions easier, cheaper, and more secure. Image credit: GigaOm

Speculation is heating up again about Apple including near-field communication (NFC) mobile payment capability in iPhone 5 next year after reports Monday by TechCruch that both Apple and Google are in talks with mobile payment company Boku.

GigaOm’s Darrell Etherington piled on in an article yesterday. The only new information is that Apple and Google are showing real interest in mobile payments capability.

But, here’s why it matters:

Boku has had decent success, by modest U.S. standards, in billing micropayments to mobile phone carrier bills.

A typical Boku purchase would be a game player wanting to buy a new weapon for 99¢. With Boku, they simply enter their phone number into the game and a text message is sent to their phone. The user responds “Yes” to the text to approve the purchase. The process provides a very frictionless checkout that encourages spur-of-the-moment sales.

One Click Checkout
U.S. carriers limit purchases to small amounts, sometimes as low as $25 per month. U.S. carriers also insist on keeping roughly half the revenue. Therefore bill-to-mobile purchases are often limited to digital goods with no physical cost-of-goods sold — like online game items.

By the carriers’ usurious standards, Apple’s 30% take of App Store revenue looks downright profitable. Apple has 160 million cards on file. That’s just a bit less than the AT&T and Verizon combined subscriber base. There’s no wonder Boku and their retail partners would be interested.

By comparison Amazon has roughly 80 million monthly purchases and owns the patent on one-click checkout. Google also competes with Amazon in the online checkout business.

Apple can take a company like Boku and provide an appealing alternative checkout option that benefits both consumers and retailers. Easier checkout means less frustration for consumers and more sales for retailers.

Plus, checkout continues to be a challenge in mobile commerce. Entering usernames, passwords and credit card numbers are challenging on small screens.

Mobile commerce sales would soar exponentially with a simple iTunes bill-to-mobile checkout option and Apple gets a cut of it all. Mobile commerce executives tell me they already see significantly higher conversion rates for iPhone users over Android and other phone users. An easy-to-use, built-in payments solution encourages even more retailer optimization for Apple products and encourages consumers to choose Apple products over other devices.

NFC Tops it Off

Adding NFC to the iPhone would complete Apple’s access to the entire payments marketplace. NFC enhances the bill-to-mobile capability with the potential to drastically reduce fraud. In theory, Apple bill-t0-mobile on an Apple NFC-enabled phone could be the equivalent to a card present EMV smartcard transaction. (EMV is the smartcard standard adopted almost everywhere but the U.S. which significantly reduces fraud (and transaction costs) using a chip-and-pin system).

Checkout would be super easy for consumers. They enter their phone number on the website, then are prompted for a PIN on their iPhone. The NFC-chip ensures that the phone is indeed the consumer’s phone and the PIN ensures the user is who they say they are and that they authorize the transaction.

This approach would simultaneously reduces merchant transaction costs while increasing sales. (Assuming Apple and merchants can convince the card companies that these more secure transactions warrant a lower interchange rate).

But the real excitement about NFC is paying at physical retail locations. NFC chips on iPhones would instantly let users pay at contactless terminals in retail stores. Terminals exist at many gas stations, fast food retailers, drug stores, and some home improvement stores.

Apple would instantly make a market for contactless payments by including NFC on the iPhone. Competitors would jump in just like we’ve seen with tablets, and additional POS terminals would be added as NFC became commonplace by the millions of iPhone users.

The technology exists, is thoroughly tested, is proven to work, and users like it. And if you’re going to get all these benefits from NFC, why not also use it in ingenious ways like logging in and storing preferences? See the Cult of Mac reports.

NFC is just waiting for a catalyst like iPhone 5.

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4 Responses leave one →
  1. Piers Boucher permalink
    November 5, 2010

    A very interesting article and certainly you would sense you’re seeing the pieces of Apple’s mobile payments jigsaw fall into place. As proffered, I would though question how an NFC iPhone (akin to an EMV card) has the capacity to reduce fraud with pay-to-bill.

    I see nothing in this model that would give the carrier the tools (non repudiation) or motivation (financial, CRM) to significantly reduce the level of refunds you currently see with pay-to-bill.

  2. November 9, 2010

    Thanks for your comment (and compliment). Who knows how it actually will get implemented.

    Here’s one possibility I’m imagining:

    – User enters their phone number on the merchant website
    – Merchant notifies Apple
    – Apple detects the number as an NFC iPhone user
    – Apple sends a secure push notification to the user’s NFC enabled phone
    – User is prompted to enter their PIN
    – Response is sent securely to Apple. Apple validates and sends approval/denial to the merchant

    This process is akin to EMV in the sense that the mobile wallet application on the iPhone handling the push notifications can communicate with the NFC chip. The NFC chip uniquely identifies the phone in a way very similar to the EMV chip (something the user has). The user PIN identifies the user identity (something the user knows).

    Non-NFC iPhone users could use a process similar to today’s bill-to-mobile processes where the user is called and prompted to enter a PIN and sent a text message as a receipt.

    The interaction between the merchant web site and the user over the secure push notification through Apple involves multiple channels. This process has similar strength to EMV chip and PIN.

  3. November 16, 2010

    Here’s an update on this topic:

    Google CEO Announced that Android 2.3 aka Gingerbread will have NFC mobile wallet capabilities built in –

  4. January 18, 2011

    Just letting you know we referenced your post in a story today:

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