iPhone 5's Passbook Is Apple's NFC Alternative

NEWS ANALYSIS: Apple surprised by delivering an iPhone 5 without NFC. Analysts suggest that iOS 6's Passbook app will instead be Apple's favored mobile payments solution, for now anyway.

Apple was expected to play catch-up to its Android competitors by introducing an iPhone 5 with a larger display and support for Long-Term Evolution (LTE) technology and near-field communication (NFC)-the technology behind a number of mobile payment solutions. NFC shipped on more than 106 million Android smartphones in 2011, and with the backing of an iPhone, research firm IHS iSuppli expected that figure to more than double by the year's end, to 232.5 million, and grow to more than 989 million smartphones by 2016.

However, while Apple delivered on the display and LTE, its Sept. 12 introduction of the iPhone 5 came and went without a word about NFC.

Is Apple still waiting for the technology to catch on? Possibly. Or, in the Apple tradition, it may have decided that it can design a more elegant solution-and possibly already has in Passbook, the iOS 6 application Apple introduced at its June 11 developer conference.

"I don't think Apple needs NFC, and I think it didn't go with NFC because it's a chicken-and-egg proposition," Ezra Gottheil, a senior analyst with Technology Business Research, told eWEEK, referring to the need for vendors to have in place solutions compatible with NFC, and for enough consumers to have smartphones with NFC, making the payments solutions worthwhile for the vendors.

"There potentially are also security problems with NFC-which will surely be fixed-but Apple doesn't want to bet on something that's not a winner," Gottheil added.

While Apple introduced (downplayed?) Passbook as a way to keep track of boarding passes and event tickets, Gottheil says, "It will have everything-your tickets and your membership cards, but also your credit cards."

Think of it as Apple's answer to Google Wallet.

Passbook "will allow users to employ their iPhone 5 to redeem coupons, movie tickets, boarding passes and loyalty cards and to conduct other financial transactions," IHS iSuppli senior analyst Jack Kent wrote in a Sept. 11 report.

"With its capability to tie purchases together, Passbook will be an effective tool for managing mobile transactions, mobile money services and mobile commerce," Kent continued. "If Apple combines Passbook with its new location platform, the company will open both a new revenue stream and a new competitive front with Google."

As for Apple's decision to forgo NFC on the iPhone 5, "If Apple had launched the iPhone 5 with NFC, it would still need to work with third parties to build content and services," Kent told eWEEK. "It makes sense for Apple to forgo NFC for the moment and save on the related costs. When or if the market for NFC services matures and it becomes a necessity for Apple to implement it, it in all likelihood will do so, but that time has not yet arrived."

Adrienne Downey, an analyst with Semico Research, points out that Apple owns several patents related to NFC, so it certainly could have long-term plans for the technology. Maybe NFC is a candidate for the iPhone 6, or despite reports that the iPhone 5's aluminum back stunts the phone's ability to transmit the NFC signal, Apple has figured out a way to still make it work, but its timetable.

Still another option is that Apple could be planning to support payments via the low-energy version of Bluetooth 4.0 that it has already included in the iPhone 4S and other iOS devices, Downey suggested in a Sept. 17 blog post.

Either way, "Apple is known for tightly controlling transactions made via apps on the iPhone already," she wrote. "Payments could be tied in through iTunes, which already contains a user's credit card information."

Earlier this year, Gartner forecast that mobile transaction volume and values will average 42 percent annual growth between 2011 and 2016, with $617 billion worth of transactions taking place by 2016. Such figures suggest that mobile payments isn't an opportunity Apple will leave to its competitors. Given Apple's preference for operating on its own terms, and an ecosystem that includes expanded cloud resources, it's likely not Apple that's in wait and see mode, but the rest of us.

Follow Michelle Maisto on Twitter.