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Apple is destroying NFC's future in retail

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If Las Vegas oddsmakers allowed gamblers to wager on what Apple (NASDAQ:AAPL) will or won't do, I would have bet big on the company adding Near Field Communications support to the iPhone 5. I would have lost big, of course, but think back to this summer, when mounting evidence suggested an NFC-enabled iPhone was in the pipeline. Most notably, there was Passbook, the new iOS 6 virtual wallet that stores and updates boarding passes, retailer loyalty cards, movie ticket apps and related consumer information and documents. Adding contactless payment capabilities to the Passbook app seemed like a fait accompli. And don't forget about those photos allegedly depicting the front assembly of the iPhone 5 that surfaced online--it sure looked like an NFC chip located adjacent to the smartphone's front-facing camera, didn't it?

Expectations that Apple would integrate NFC payment support into the iPhone 5 buoyed projections for the contactless payments market as a whole. Back in July, weeks before Apple took the wraps off its latest smartphone, Juniper Research forecasted NFC-enabled mobile retail payments would exceed $180 billion by 2017, a seven-fold increase over 2012. This week, Juniper backpedaled, slashing that forecast to $110 billion and blaming Apple's decision to withhold an NFC chipset from the iPhone 5 for derailing retailer and brand confidence in the technology. According to Juniper, Apple's reluctance to embrace NFC is translating to reductions in both point-of-sale rollouts and consumer awareness, setting the stage for a cycle of "NFC indifference." Although NFC strongholds like Japan and South Korea remain unaffected, Juniper now believes transaction values in the North American and Western European markets will suffer a "two-year lag."

"While many vendors have introduced NFC-enabled smartphones, Apple's decision is a significant blow for the technology, particularly given its previous successes in educating the wider public about new mobile services," said Juniper report author Windsor Holden. "Without their support, it will be even more difficult to persuade consumers--and retailers--to embrace what amounts to a wholly new means of payment."

Apple will presumably introduce its follow-up to the iPhone 5 sometime in the second half of 2013, and while there are no guarantees the next version won't include NFC support, there are also few reasons to think it will, especially given reports that high-ranking Apple execs have expressed serious doubts about NFC security, payment processing and retailer adoption. But here's the catch: While Apple is waiting for merchants to embrace NFC, the new Juniper report suggests merchants are waiting for Apple to give the technology its blessing by integrating it into iOS devices. It's a stalemate, and it's killing NFC's prospects in the U.S. retail market.

To be fair, Apple isn't the sole culprit here. Juniper also blames slower-than-expected adoption of the Google (NASDAQ:GOOG) Wallet tap-and-pay service as well as the delayed launch of carrier-led Isis. But the iPhone is the gold standard--the device by which all others are judged--and Apple's resistance to adding NFC support sends the message to consumers and retailers that the technology is simply not ready for primetime, at least not now and maybe not ever.

Even Google seems ready to admit that Wallet isn't going to take off if it isn't available on the iPhone. Reports indicate Google is poised to add a physical credit card connected to the Wallet platform, enabling consumers to make in-store purchases at retailers that do not support contactless payment options. The rumors follow a recent Wallet website update promising "The next version of Google Wallet [is] coming soon," complete with a signup page asking "What kind of mobile device do you use?" and offering three options: Android, iOS or "other," the latter represented by an illustration of a smartphone with a physical keypad à la Research In Motion's (NASDAQ:RIMM) BlackBerry devices.

Rolling out an iOS app and physical card would enable Google to extend Wallet support to the iPhone while bypassing NFC altogether--a huge step forward for Google, and a huge blow for NFC's future, because it proves that mobile commerce players are willing to adapt to Apple's whims and demands, giving Apple even fewer reasons to give NFC serious consideration. And if Apple doesn't take NFC seriously, no one else is going to, either. --Jason

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