iPhone 5: Why no NFC?

Apple left out near-field communication technology in the new iPhone 5, a decision that one NFC backer said could result in Apple's loss.

But several mobile payment experts said Apple probably made a good choice for now, given the slow rollout of NFC, especially in the U.S.

Only 2% of merchants globally are equipped with NFC-reader terminals, not nearly enough to merit Apple's attention, said Rick Oglesby, an analyst at Aite Group. "Apple would need something really global to make it work," he said.

Apple's critics included a UK-based communications marketing company called Proxama. "NFC is going to progress at a pace without Apple," said Miles Quitmann, managing director of Proxama, in a statement. "This could be Apple's loss."

Quitmann said many credit card companies and smartphone vendors have committed to NFC, spending millions of dollars on developing the technology. Proxama is working with Device Fidelity on an NFC battery sleeve that will allow an iPhone 5 to interact with NFC marketing tags embedded in posters and product packaging.

What Apple decided to do instead of NFC is promote its Passbook mobile payment software, which runs on the new iPhone's iOS 6 mobile operating system.

Passbook relies on transmitting payment data via barcodes on the iPhone 5's 4-in. display, according to a video of Apple's iPhone launch at around the 45 minutes mark.

"Passbook is the best way to collect all your passes in one place," said Scott Forstall, senior vice president of iOS software. He showed how an airline boarding pass, a Starbucks card, a football ticket and other forms of money-backed "passes" can be presented in barcode format to make a transaction.

Starbucks has been successfully using a similar barcode scanning concept with its Starbucks card for more than a year, since it already had the optical barcode scanners installed at pay stations in its stores. Starbucks officials said they didn't want to wait for NFC chips to be widely deployed in smartphones.

NFC requires special software or a special payment terminal for communicating with the NFC chip in a smartphone, and some merchants have balked at making those changes.

Apple Senior Vice President Phil Schiller, in explaining why the iPhone 5 does not include NFC, told AllThingsD that "Passbook does the kinds of things customer need today."

Google Wallet, another mobile payment system launched a year ago, relies on NFC and cab used in several Android phones. Some Android phones, such as the Galaxy S III, only use the NFC chip to make quick data transfers between phones.

Isis, a consortium made up of wireless carriers AT&T, Verizon Wireless and T-Mobile USA, is planning to launch a mobile payment system based on NFC in Salt Lake City and Austin, Texas, later this year. Isis defends NFC as the most scalable and secure of mobile payment approaches.

In addition to Oglesby, other analysts said Apple made the right choice to include NFC in the iPhone 5, saying the hardware would have taken up internal space when Apple was trying to make its thinnest and lightest iPhone to date.

"In a move to increase functionality in the device, clearly LTE was the first priority and more important than NFC right now," said Jack Gold, an analyst at J. Gold Associates. "NFC does take up space and resources in the phone, so they would have had to perhaps make the device somewhat thicker or have had less space for battery. Even though NFC is only a chip, it also requires an antenna that could interfere with others in a highly compact device."

Gold said Apple doesn't face any urgency to provide NFC now. "NFC has taken off very slowly and will likely take at least a couple more years to catch on," he added.

Carolina Milanesi, an analyst at Gartner, added that "consumers are not jumping up and down to get NFC right now." Many U.S. consumers still write checks, a predecessor to credit cards, she noted. "You wonder how ready consumers are for mobile payments."

"There's no real pressure right now in delivering NFC," Milanesi added. "The ecosystem is far from ready from a payment perspective. This doesn't mean Apple is not interested in NFC. They will do it when they can take advantage of it and deliver a differentiated solution to users."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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