Iphone 5, NFC and the payment experience: scenarios and implications

In recent discussions, the Iphone 5 NFC technology was often mentioned as a key move: see Brett King’s post on Iphone 5 and posts on Apple recruiting an NFC specialist. I agree an Iphone integrating NFC technology will be significant, but for me contact-less is just the technology that would allow all transactions to be electronic, with strong implications in terms of analytics, identity.

First some quick thoughts on the Iphone 5 NFC. Several models seem to be possible (feel free to add yours in comments).

1. NFC is integrated in the Iphone 5 the same way the camera or the motion sensors are. Developers, including for contact-less payment apps, have access to the module through a set of API. Apple in that case would be completely agnostic to a payment identity, network, partner. Apple could control its user experience by reviewing the apps using the module for security.

2. Apple is partnering with the carriers and payments done through the NFC module are billed by them (Billing technology is one of the forte of carriers). Rumours of Apple (and Google) talk with Boku seem to support this scenario. Apple could share revenues with the carrier on transaction fees. On the other hand Apple could also partner with payment networks to support its NFC transactions.

3. Apple is making a major step in the financial services world and links the NFC module to the Itunes identity (and credit card numbers or additional payment means). All payment done through the NFC module are debited through the Itunes identity. Apple may charge a fee per transaction for the apps using the module (in line with the way developers have to share revenues with Apple on the App store). Or as mentioned in recent patent applications, retailers would load their product details, offers in a database on Itunes to allow payment with Iphone 5 and pay a fee to Apple for that service.

However, on top of the ability to use your phone as a electronic wallet, there are strong opportunities to for this significant shift in behavior to change the payment experience.

As of now, the offline payment experience  can be defined as flat and even detrimental to the customer but can be fundamentally modified:

– Retailers most likely don’t know who you are.
In truth, even if you are coming regularly to a shop, chances are they will have a hard time identifying you as a recurrent client and build a special relationship with you. Retailers understand that and have tried to compensate for it, using customer cards (but you need to bring them back and often they have been attached to credit products), requiring information from you (what is your email, telephone number?) and now monitoring your checking on location based services. In all cases, this tracking needs a specific effort from the customer and because of that is a flawed experience.

What is the solution for retailers? Most likely in the single event that is defining any transaction: the payment experience. A payment through an NFC enable Iphone 5, could allow for each transaction to include: the identity of the customer and the retailers (maybe through Facebook if done with Credits), information based on the recurrence of such transactions leading to special offers. It could also include details on the product that would help generate recommendations in the same way Amazon is doing it online. It could help generate tips to friends, for clothes style recommendations with products already bought. The possibilities are endless.

– The receipt is the perfect example of a broken experience, as defined by Seth Godin.

Seth Godin at Gel 2006 from Gel Conference on Vimeo.

Look at any typical receipt and you would have a hard time understanding most of it. Batch numbers, RRN, Terminal Id, Merchant #, and other random pieces of numbers and letters. In most cases the product name is not even recognizable and the merchant name is broadly defined. If you try to remember where you bought a product, how much it was etc, chances are a typical receipt will not help you because it is not designed for the customer.

One of Square key point is to produce the best receipt possible. As said by Jack Dorsey:

So what if we could really turn the receipt into more of a publishing medium, into something that lives on and something that is actually clickable and useable, and something that just exposes the various end points of the transaction.

A typical Square receipt will give a clear definition of the product bought, maybe an attached text and photo, a GPS map of where you bought something and the number of transactions you had with the vendor.

A NFC enabled Iphone, if open enough to support innovative companies and models, could help support these changes. However, if kept as a new medium for a typical card transaction, the status quo would stay.

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  • Nice post. even though everyone thinks this will be big, I still think they are underestimating just how disruptive (smart payments) will be. The impact will be huge with lots of secondary and tertiary effects… Hold on to your hat!

  • And the value proposition for NFC extends far beyond… airline ticketing, transit/id, networking/pairing (eg. with TV, computer), sharing content… some of which will be far easier wins for Apple than payment. iPhone 6 perhaps?

  • Anonymous

    Thank you Sean. Yes this should be a really crazy ride, interesting and full of opportunities!

  • Anonymous

    I agree, if Google gives a lot of freedom to developers, a lot of this could happen really fast!