Alex Watson
I suspect I’m not the only one who is so attached to their phone. The degree to which the mobile phone has slotted itself into modern life is incredible and unprecedented: in 15 years, mobile phones have gone from being luxury items to being so functional that they’re utterly integral to a normal day. Technology is often perceived or portrayed as solving existing problems, and while I’ve no doubt that it can do this, the case of the mobile phone’s acceptance into society clearly illustrates that if a technology is generally alluring, people will significantly reorder their lives around it.
The phone’s unique holed on modern life – and the way in which we’re so accommodating to it – is presenting huge opportunities and challenges to businesses. Without a major turnaround, for instance, the rise of the phone will relegate Sony to being a second-rank electronics firm, one known for producing TVs, laptops and the PlayStation, rather than an all-purpose tech company with its own interesting inventions. Microsoft has belatedly realised that it, too, is in danger, hence the enormous effort it’s expending on Windows Phone 7.
Phones are so important because, really, when it comes to a cutting-edge 2010 smartphone, it’s not so much a phone as a computer. Phones now have the power of computers yet they occupy an always-with-us, trusted and personal space. This means they’re uniquely poised to be able to absorb many areas that previously were served by discrete pieces of technology, such as personal stereos, or that currently aren’t computerised, such as money.
Yes, the comparison of a phone to a wallet isn’t one I made solely to point out how ubiquitous the phone is: it’s also yet another area in which Google and perhaps Apple are interested. Why not turn the phone into a wallet, allowing someone to make payments with it? Almost all of the technology is in place and the one bit that’s needed – a way for the phone to quickly talk to a till – is on its way very soon in the shape of the near-field communications (NFC) chips Google is planning to build into its next Nexus phone and that Apple is rumoured to be looking at for the iPhone 5. NFC is an evolved and expanded version of the RFID chips used in contactless tickets such as the London Underground’s Oyster scheme.
Google CEO Eric Schmidt showed an Android phone with an NFC chip at a conference in early November, saying that the chip was more secure than the magnetic strips current cards use. In a previous Mac to The Future, I touched on Apple’s work in this field: Apple has filed patents showing the iPhone being used for ticketing, and current web rumours also claim the company has looked into using NFC to allow a phone to talk to a Mac in order to authenticate different users. It’s also been hiring aggressively in the NFC area and has filed patents looking at using the iPhone to make payments. The logic for Apple is clear: it has a huge number of credit cards on file with the iTunes store, and having experienced just how much cash you can make as a middleman for digital goods (apps, songs, movies), it doesn’t take a genius to see it thinking about becoming the middleman for physical stuff.
It’s an idea that’s obvious and commercially appealing, but it’s also one that’s failed before and is laced with the kind of industry politics that can easily trip someone up the moment they make a few first steps.
When I say it’s ‘failed before’, I’m referring more to the concept of electronic money. Since the 1980s, various credit card firms, banks and entrepreneurs have launched schemes to get rid of cash. I had to deal with one in the late 1990s at university. To pay for the washing machines in our hall of residence, you had to use Mondex: a smart card with a chip on it, which held a balance of cash. You needed to go to the JCR to top it up and once it had some cash, you could then wash some clothes. The system was terrible, because in every way it was worse than cash: the card was one more thing to carry, there was no way to easily see how much value was stored on it and you had to remember to top it up while the JCR was open – yet when the machines were least busy was late at night. You still ended up with ‘loose change’, but because only the washing machines used Mondex (even the dryers were coin-op), there was no way to spend these odds and ends.
These criticisms are fairly typical of electronic cash systems and a phone-wallet system would address them all: you’re already carrying your phone, it has a display, the systems to take payment are all automatic and the value in the phone can be used for other items such as talk time or data allowance.
While phone wallets have addressed the deficiencies of previous electronic cash schemes, there’s industry politics to deal with: when it comes to payment, the networks will want that money to come through them. Apple will, of course, want it to go through iTunes, which bypasses the networks completely. Having let music, movies and apps through, it’s hard to see how the operators can stop the iPhone being used for payments – unless, of course, they start threatening Apple with not carrying the iPhone itself. Google is likely to take a more conciliatory approach to working with the operators, commensurate with its strategy of making Android so free and frictionless for companies working with it that it ends up in millions and millions of devices.
Even if Apple’s momentum and the success of the iPhone allows it to steamroller over the networks, there are other rivals to the phone-wallet idea. Both Visa and MasterCard have introduced contactless-payment systems, enabling banks to embed an RFID chip into some of their credit cards so people can pay without needing to insert the card into a reader and enter a Pin. Sandwich retailers such as Eat and Pret A Manger have started to introduce readers for these cards in their stores, building an early lead for their systems. That said, it’s not necessarily the case that Visa and MasterCard want to oppose Apple: they’d be quite happy to provide the payments infrastructure, and Visa’s site for PayWave talks up the benefits of mobile phones integrating its technology. ‘We’re involved in a wide range of mobile pilot programmes across several countries, working with multiple partners,’ says the company.
Here’s perhaps the main challenge for Apple when it comes to NFC payments. People carry their iPhone, trust it with their card details and the technology itself isn’t an issue. No, the problem is that Apple isn’t always a company that works well with others, preferring instead to build its own equipment, its own stores and its own services. Creating a viable iPhone-wallet system would require a huge amount of work with other retailers and companies. Still, the rewards on offer are huge and would enable Apple to further bind iPhone users to their devices.
