We’ve talked a lot about mobile payment and the challenge of getting the players — or at least a slim majority of the players — to back a standard in order to gain some momentum.
Apple (AAPL) has been the holdout that refused to participate at all. With the release of the iPhone 5S and its fingerprint scanning Touch ID, it was hoped that Apple would finally choose sides, opening the doors for iPhone-toting consumers to add their considerable numbers and help mobile payment take off.
There’s just one problem though, and it’s a big one. Instead of adopting NFC communication like everyone else, Apple threw a wrench in the works by going with its own iBeacons. Once again, Apple is bucking the established trends and backing technology it feels is superior.
A quick primer on near-field communications. NFC lets mobile devices connect to nearby objects through NFC chips and tags. Smartphones running Google’s (GOOG) Android OS are increasingly NFC-enabled, and this technology lets a user “bump and pay” without having to pull out their phone.
NFC’s primary limitation is distance. The NFC chips or tag need to be less than one foot apart — ideally less than two inches. Not the end of the world when it comes to payment, but for products to have NFC communication (so they alert a passing customer of a special deal, for example), that requires a blanket of tags. At 10 cents a pop for NFC tags, it’s something retailers have been willing to live with.
Apple’s iBeacons uses Bluetooth Low Energy technology. Bluetooth is offered on most smartphones and the latest release of Android implements BLE support — it’s the same communication method used to connect Samsung’s (SSNLF) new Galaxy Gear smartwatch to a mobile device. BLE can also be used for secure transactions such a mobile payments.
Here’s where things get interesting, though. BLE has a maximum range of more than 160 feet along with a data throughput that’s double the speed of NFC. The potential is beginning to dawn on retailers. One industry insider quoted in a RetailWeek analysis of iBeacon’s impact on NFC says:
“iBeacons will be the biggest change for retailers since smartphones. Within the space of a month or so there will be 700 million iOS devices with iBeacons, enabling indoor positioning, micro-location and a new form of contactless payment.”
The Verge points out that mobile payment companies are already hopping in the iBeacons wagon with PayPal looking for a 2014 release of supporting products. Companies such as Estimote are offering iBeacons that cost in the $30 range, run for two years on a single coin battery (that’s the low-energy part of BLE) and can blanket a store with coverage on the cheap.
GigaOM did the math and figures that if a typical Macy’s (M) department store wanted to beam product information from its stock to customer smartphones it would cost between $230 and $5,000 for iBeacons. Plaster the stock with enough NFC tags to hit customers with contextual messages could cost as much as $100,000 (to tag one million boxes). The store would have to keep replacing those NFC tags as stock was sold, while the iBeacons would remain in place (or could be reprogramed and moved around) for two years.
Apple quietly introduced iBeacons with iOS7. There’s been no mention of it in the keynotes and it’s only made brief appearances as a line item on presentations. Despite the low-key introduction, it has the potential to turn into one of the killer features of iOS 7.
Combined with the Touch ID feature of the new iPhone 5S, iBeacons could be the one-two punch (connection plus security) that helps mobile payments take off. Even without the payment aspect, its ability to bombard customers — or track their actions within stores — has retailers excited.
By choosing to go with BLE instead of NFC, technology that’s effectively cross-platform (and thus has the potential to be available to a deeper pool of consumers), the company could swing some of the big mobile payment players into its camp.
ISIS, for example, relies on NFC terminals for its SmartTap solution, but requires Apple users to buy and install a “special accessory” for their iPhone to gain NFC support — clumsy and unlikely to convince many iPhone fans to adopt this wireless wallet solution.
The retail applications for BLE and iBeacons beyond payment will add pressure to the mobile payment vendors, and this could all end with Apple becoming the Kingmaker in forging a mobile payment standard.
Alternately, the company’s continued refusal to adopt NFC could mean another year of jostling for position with mobile payment continuing to fail to live up to its potential. If iBeacons take off, look for leading NFC chipmakers like NXP Semiconducters (NXPI) — up 235% in the past three years as NFC gained momentum — to suffer as a result.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.