The competition to turn mobile phones into wallets
Apple's new near-field communication (NFC) patent is an attempt to seize that control by forging a direct automated connection between consumers, merchants and card companies, enabling Apple to ply its popular iPhone and iTunes Store into a mobile transaction machine.
"Given their iTunes program and their reach, Apple is positioned to have a successful following for a mobile wallet," says Adil Moussa, a senior analyst at Aite Group.
News of the new Apple patent was first reported on the Patently Apple blog early Wednesday. Apple did not return a request for comment by mid-day Wednesday.
The patent, which has been in the works for some time, covers a method to allow an embedded NFC chip to be used to execute mobile payments when an iPhone user pays at a point of sale terminal. The patented technology allows card companies to send information to a user's iTunes account for NFC-enabled iPhone purchases. The patent also covers management of payments by secondary account holders, such as family members or employees of a business. The patent application includes rules regarding how these payments will be managed and executed, such as limits, product restrictions and geographic parameters. Also, the patent filing describes how users would view statements and receive alerts when spending is about to exceed a pre-determined limit.
While Apple is notoriously cagey about its future plans, all of this would portend a future NFC-enabled iPhone that includes a mobile wallet. This wallet could be used by both consumers and businesses, which could leverage rules to include location-based special offers, spending controls and security measures to cancel rule-breaking transactions.
"The thing with Apple, they are very secretive, you don't know how it's going to play out and how they will do it and through which platform," says Moussa.
Apple would join a crowded field of mobile wallet contenders, including ISIS, a telecom-driven consortium including AT&T, Verizon and T-Mobile; and Google Wallet, the participants of which include MasterCard, Citigroup and First Data.
"The new patent is a huge, though not unexpected, move on Apple's part, and it has major implications for the mobile payments world, and in the long term, the payments space as a whole," says Peter Wannemacher, an analyst for Forrester Research.
NFC is a vital element in the plans of these initiatives, but there are several versions of how NFC can be delivered, with telecoms and handset manufacturers like Apple each having their own preferences. In the case of Apple, the embedded NFC chip allows storage of data on a secure element on the phone, which puts Apple in control. Telecom-driven wallet initiatives such as ISIS prefer SIM cards, which store the international mobile subscriber identity and a key used to authenticate subscribers to mobile services. The advantage of SIM cards is they can be inserted into different phones to activate that phone as a mobile payment device, making mobile wallet capabilities accessible to a wider variety of phones. Apple has also patented technology that covers the sharing of information between devices, such as iPhones, iPads, Mac computers and point of sale terminals.
While an NFC-enabled iPhone would dramatically increase NFC-embedded phone coverage, mobile phones with NFC aren't widely available currently. In the U.S., only the Sprint Nexus S 4G and Samsung Galaxy Nexus have embedded NFC.
Apple's moves aside, Wannemacher says the battle to control ownership of the consumer data tied to the mobile wallet is still far from over.
"I would stress a truism: if you are focused exclusively on the NFC aspect of mobile payments, you are missing the point. NFC technology will likely be a key piece of the puzzle, but the more powerful question is how the payment itself will be made and settled, and where the consumers' information will live. Will it be stored within the phone itself? Will it be branded by a bank or firm but hosted by a vendor? Will it live within the mobile banking app or mobile website on the phone?"
