iPhone 6 Paves the Road to Connected Commerce on NFC

Just as iPhone 3 revolutionized the use of the Internet on mobile, iPhone 6 could very well change the way we purchase and pay using NFC technology.

Over the past ten years, Apple has been able to develop a powerful eco system of more than 500 million fans due to its easy-to-use innovative products. This asset, with the genius of Apple’s marketing, could boost the use of NFC mobile payments in the world of connected commerce.

From the user point of view, Apple brings together several prerequisites for success in their NFC bet:

1. Simplicity of Apple Pay provides for a great user experience in mobile payments.
   Assuming the payment application is validated by the issuing bank, enrolment in Apple Pay is as easy as taking a picture of your credit card. Then, the transaction is performed by the simple gesture of contactless payment and the authentication by the biometric sensor, already experienced with the iPhone 5S. All this adds up to great user experience.
2. High security features in iPhone 6 give user greater sense of confidence.
   Apple Pay meets the requirements of banking security of Visa/MasterCard with a built-in secure element (not SIM-based) for encryption of sensitive banking data, and biometric sensor authentication, reserving the payment function to smartphone’s bearer. In the event of loss, the payment function is blocked remotely and services are restored to a new device.
3. The number of merchants accepting contactless NFC payments is on the rise.
   Apple Pay is compatible with contactless Visa & MasterCard (EMV schemes) and Amex payment. This opens the use of mobile payment in the majority of acquisition networks – subject to endorsement of merchant’s acquiring banks. The mandatory move to EMV terminals in USA next year means even a larger number of mobile NFC payments globally. Soon, most merchants equipped with a contactless payment terminal will be able to accept NFC payments from iPhone 6.

In addition having proficient mobile payment features, iPhone 6 offers a seamless connected commerce experience. Passbook application opens a complete palette of cross-channel services: loyalty cards, discounts, vouchers, tickets. Apple allows for a better interactive customer experience at point of sale by incorporating the use of Bluetooth (iBeacon), which can activated via NFC or an Apps. But above all with tokenization, Apple is positioning itself to ensure online purchases and proximity payments, smoothly and seamlessly within Apple Pay. Eventually, there will be no distinction between « card present » mode and remote payment. As such, due to this cross channel convergence, Apple Pay may be n alternative to card payment in the future. Much more: Apple Pay solution could also be applied on the seller side for cash transactions or for redeeming deals in shops.

While the NFC technology has become the worldwide standard for simple and secure proximity interactions, the ecosystem is still evolving. With 12% of market share, the iPhone must coexist with Android, which commands 80% of smartphones market, most of which are equipped with NFC chips and comply to open interoperability models. In France, cities like Nice, Strasbourg and Caen have commercially deployed a portfolio of NFC services: ticketing, payment, local interactions, etc. These citizens services, as Connected Commerce, target the largest number of users because NFC technologies promises standardized open exchanges.

Fair value sharing and data monetization are on top of everyone’s mind.

Will the service fees charged by Apple for mobile payments be considered as competitive?
And how will this notion of disintermediation be perceived by merchants and banks?

Today, other alternatives exist to achieve secured mobile wallets:

• ‘SIM Based’ GSMA model – Isis brand in the US.
• Social shopping models, such as Fivory in France or MCX in the US.
• Google and Paypal approach, betting HCE ‘cloud based’ mobile payment…

While Apple has the clout to pave the road towards a connected commerce experience, its high prices tend to keep these devices in the hands an exclusive clientele rather than the mass markets that are favored by merchants and other services providers. However, the coexistence of Apple and other players will have to be accepted because it seems inconceivable to overlook such a leader.

France is ready with 23 million contactless bank cards issued and over 200,000 merchants equipped to accept them; transportation ticketing systems such as Calypso already have NFC; and standardized information services with interactive NFC tags have also been deployed in several cities. It will be interesting to see how NFC features of iPhone 6 will affect payment methods in Europe and elsewhere. This is the right time for merchants, banks and cities to start examining how best they can leverage the NFC feature of iPhone 6 and Apple Pay

iPhone 6 will likely be a subject of a quite a few debates at NFC World Congress 2014: this is the place to be if you want to assess your strategy for Connected Commerce.

The NFC show must go on!

François Lecomte-Vagniez

Partner, Lobary Consulting www.lobary.com
PC Chairman, NFC World Congress www.nfcworldcongress.com
Member of the EESTEL, European Experts in Electronic Transactions Systems www.eestel.com

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This article was published in French on September, 11^th, 2014.
https://lobary.wordpress.com/2014/09/11/liphone-6-taille-la-route-du-commerce-connecte-en-nfc/