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The fact that U.S. infrastructure is underdeveloped from an NFC standpoint may be exactly what makes the market appealing to Apple. It allows Apple to become a dominant player in in-app payments first:

  • Apple already benefits greatly from an app-centric mobile commerce environment, it seeks to preserve and build upon this ecosystem.
  • Apple Pay is extremely well positioned to quickly expand Apple’s already large share of the in-app payments market, NFC infrastructure is not needed for that.
  • By deploying it’s own marketing power, together with that of 500 banks plus that of the major payment networks, it will deploy massive resources to create consumer awareness and demand to use Apple Pay. At the same time, the lack of NFC infrastructure ensures that consumers will only be able to use Apple Pay in the places where Apple benefits the most – for in-app payments.
  • Apple can freely add alternative payment mechanisms to its in-app payment capabilities, where acceptance infrastructure is not a problem. It could add PayPal, ACH, online debit, PayNet/MCX, cyber currencies or others that could quickly make in-app payments more competitive and less expensive for merchants than network driven, card present transactions.

Once Apple is a dominant player in in-app payments, it can extend it’s dominance to offline payments:

  • Passbook serves as a hub for all mobile apps, a place where consumers, merchants and app developers can centralize, organize, and automate information recall and exchange for close proximity commerce. Apple Pay is fully integrated with and a component of Passbook.
  • Because Apple Pay is a part of Passbook, the above-mentioned Apple Pay consumer awareness and demand creation efforts will create a flurry of activity around Passbook as application developers seek to take advantage of the newly created consumer and merchant attention.
  • Passbook has long supported Bluetooth Low Energy (BLE) and barcodes. These technologies are currently available for use by all developers, while NFC can only be used by Apple. That, coupled with the lack of installed NFC infrastructure will ensure that the flurry of activity created by Apple Pay publicity will actually focus on BLE and barcode technologies. The resultant apps will use Apple Pay in the background as an in-app, non-NFC payment mechanism while using Passbook, BLE and barcodes as the merchant interfacing solutions of choice.
  • As a result, Apple can leverage the marketing power of the financial institutions and payment networks to establish itself as a dominant player in in-app payments, a capability which Apple could then extend via Passbook to make in-app payments the default mobile payment mechanism at the point of sale. If the goal is to become dominant in in-app payments first, the lack of NFC infrastructure actually provides a benefit. Once established as the in-app payments leader, Apple will be indifferent to transmission technology (BLE, barcode or NFC) as it will be able to leverage any of these technologies to accomplish its goal of extending its in-app dominance to the point of sale.

So as the payments industry celebrates Apple’s acceptance of NFC technology, payments executives should take note. It is the payments industry that needs NFC, not Apple. However, we still must assume that Apple’s adoption of NFC is self serving. So we should think hard about why the world’s greatest product company is adopting and launching a solution in a market where it is unusable in the vast majority of merchant locations, why it’s preventing that technology from being used in situations other than in which it is currently unusable, why it has not embraced the technology for additional devices such as its new iPads, and why it is claiming that it will reinvent payments while at the same time following a blueprint that is essentially provided by the payment networks and has already been tried unsuccessfully by others. Does Apple really care if NFC succeeds?  Or is Apple adopting NFC because the lack of NFC infrastructure coupled with the payment industry’s desperation to make NFC succeed combine to make NFC adoption a terrific business play to establish in-app payments dominance and a foundation for future offline payments dominance?

Click here for a global look at Apple Pay with commentary from our Double Diamond Group colleagues located around the world.