Is this the year that Apple (AAPL +0.01%) finally joins Google (GOOG +0.52%) (GOOGL +0.56%) and Samsung (NASDAQOTH: SSNLF) in adoption of near field communication?
Although Apple has favored Bluetooth technology over NFC in the past, KGI Securities analyst Ming Chi-Kuo, who has been notably accurate regarding Apple predictions, believes Apple will include NFC chips in this years iPhone models. There have been several other indications that Apple is warming up to the idea of NFC, so this year it may finally make sense for Apple to include the technology.
The iWatch is coming
Kuo expects Apple to release the much-rumored iWatch in the third quarter, and expects the devices to include NFC chips as well. Considering the typical locations of the iPhone and watch on a person, this could open the door for NFC use between the two devices. (Think about where your wrist falls naturally.)
The advantages of using NFC over Bluetooth Low Energy are limited, but not insignificant. Primarily, there's the matter of security. With NFC's limited communication field of a maximum 20 centimeters, it would be mighty difficult for a hacker to get to your data. Additionally, NFC is only enabled when necessary, adding to security.
That same feature saves marginal battery life over Bluetooth as well. NFC is also capable of enabling and disabling Bluetooth and WiFi connections when necessary, adding to the efficiency of data transfers.
Samsung neglected to include NFC in its Galaxy Gear smartwatch, but does include the technology in the charger. NFC is used to pair a smartwatch with a smartphone, but it doesn't typically transfer data between the devices.
It hasn't slowed sales, though. Samsung claimed to ship 800,000 units in the first two months of the devices release. It has notably bundled the Gear with its smartphones to improve sales. Apple could rely on a similar tactic to boost iWatch sales.
These little features are what Apple could use NFC for, but in no way do they necessitate NFC chips. Yet if the iPhone is going to use NFC, the iWatch could take advantage of it.
The bigger reason for NFC
Apple may implement NFC in the iPhone to facilitate mobile payments. Although Apple is partial to its Bluetooth iBeacons for facilitating commerce, the company can use NFC to establish a secure connection first.
In a patent application filed earlier this year, Apple plans for a "Method to send payment data through various air interfaces without compromising user data." The method starts with an NFC connection, but completes the transaction via Bluetooth or WiFi.
Apple has laid the groundwork for a mobile payments platform. The company has nearly 600 million credit cards on file through iTunes, it has a digital wallet with Passbook, its iPads and iBeacons are being deployed in retail outlets, and it has expressed serious interest in payments processing. The only thing left for Apple to do is to make a consumer-facing product.
Google took the opposite approach when developing its digital wallet. It brought the technology to consumers, and felt retailers would adopt the technology as consumer demand picked up. The approach has largely failed as consumers ignored technology that was (at best) just as easy as a typical credit card.
And that's the real competition for Apple in payments -- credit cards. To that end, Apple details plans to transmit "additional data" during transactions such as receipts, coupons, and other incentives. This is where Bluetooth connections are critical, as transferring that amount of data over NFC is impractical. If Apple makes using and saving coupons and other rewards easier with its digital wallet, it has a real advantage over other payment platforms.
Will we see NFC?
Apple's neglect of NFC is fairly typical for the company. It likes to guard against feature creep, so it won't add anything that isn't necessary. If Apple does include NFC in the next iPhone, it could indicate its intention on entering the mobile payments market. Considering the mobile payment market is expected to grow to a $90 billion market by 2017, that's worth keeping an eye on for Apple investors.
