Apple and NFC – Part 2

Previous Blog – Apple and NFC 

Well, I was right last year… a lone voice in the wind with BGR. Let’s see if I can repeat.

Prediction: Apple iPhone 5s/6 will have NFC.

Caveat.. it will operate MUCH differently than what you think of todayExposure: 000 : 00 : 00 . 156%Accumulated%=0

Hardware? My bet is  Broadcom’s BCM43341 or BCM20793 chip 

Broadcom has launched the industry’s first quad-combo chip. The BCM43341 combines NFC, Wi-Fi, Bluetooth and FM radio on one chip and, says Broadcom, “offers OEMs unmatched size, power and cost advantages.”

A second new product is a single card solution that pairs a BCM20793 NFC controller as used in the Google Nexus 4 with an 802.11ac (5G) WiFi radio and is aimed at high end mobile phones and devices.

Broadcom’s BCM4334 combo chip (dual-band 802.11n, Bluetooth 4.0+HS & FM receiver) is already in the iPhone 5, and other versions in  iPad  yet other possibly extending into Mac  success as well. What I find most interesting is the BC 2079x family of “stand alone” controllers. Broadcom has also contributed its NFC software stack to the Android Open Source Project. A generic controller with software stack which manages both secure storage and multiple radios in multiple frequencies. This is NOT the NFC which MNOs and Bank’s envisioned (see SWP).

HOW WILL APPLE LEVERAGE NFC?

This is the billion dollar question.

My guess is that Apple will focus on creating a new security and authentication infrastructure on the phone, and in the cloud. This infrastructure has both software and hardware components, and will change the way other “apps” interact with customer data, customer sensitive information (ie location) and the OUTSIDE WORLD.  For example, today apps that require location must adhere to policies consistent with “location services“. Think about extending this type of control over your credit card information, name, address, e-mail.. what apps get access to which data? Now also think about this new service which can identify you are who you say you are (identification) which will be present with AuthenTec capabilities

iPhone-6-Fingerprint-Detection-And-Apple-Release-Date-Rumors

Apples new lightening connector extends the iPhone security “platform” from the phone to external devices via proprietary cables which must contain embedded Authentication chips . I bet the folks at RIM just fainted reading this.. RIM built the most secure mobile platform in the world, with secure integrated corporate e-mail.. no developer community, “average” user experience.. and a completely STUNTED internet browser. Apple is going after security last.. after they have everyone hooked on the platform. Apple is completely brilliant, it took a “good enough” approach to security to build user base.. now it is adding services and security. .

All of this is completely consistent with what we see in Patents, acquisitions, evolution, phone architecture, … and Apple brilliantly evolving the company into orchestration as I outlined in blog on Stage 4 Value shift.

Could the new iPhone run Visa Paywave? sure.. however it may need an add on antenna.. as the design of NFC within the iPhone was not built to around supporting someone else’s  project (Visa/Banks).

where value lives

This is the paradigm which must be broken. Don’t think of NFC in terms of payment, it is just another radio.. actually it has 3 parts.. the radio, controller, and secure storage.. each of which can take on very different roles in a new Apple architecture. Why transfer data view NFC/ISO 14443 @  424kb/s when Bluetooth V2.1 is 2.1 Mbit/s and Bluetooth V4/V3 is 24Mbit/s… (60x faster).

I predict all of the phone platforms will spend whatever is necessary to retain ownership of customer and customer information. All commerce and financial services are dependent on consumer Authentication… it is the lynch pin for retaining the “hub” role in value orchestration and future margin..

Handset manufactures (Apple, Google, Samsung, …) are flipping the NFC value equation. From a SIM based SWP approach to an multi functional embedded approach with integrated consumer authentication. I’m amazed that there is not more press here. The implications are tremendous.

See previous blog KYC – $5B opportunity (I may have guessed low).

Advertisements

26 thoughts on “Apple and NFC – Part 2

  1. Few people indeed pay attention to “NFC is just another radio” (as well as to advantages of BT4).

    As for mobile payments (via NFC), Apple will either have to partner with the issuers or… become one…

  2. Another part of the equation, that could be extremely relevant to NFC (and Apple), is the (alternative) form factor.

    Paying with the phone itself has its downsides, especially in case of transit (public transport is currently the most compelling and “here now” use case for mobile payments). Another interesting and practical use case is 2FA.

    A smartwatch offers a much better UX in both cases. Apple is working on iWatch. Do we smell the coffee?.. (Note that mobile operators are not in the picture as far as a smartwatch is concerned – few even realize that it is a bigger threat than an embedded secure element…)

    As for KYC, wouldn’t banks have a better (i.e. “deeper”) value proposition there, compared to MNOs?..

  3. Thanks so much for the thoughtful note Alexander. A great example of the dialog I am hoping to have in this blog… a community of good ideas as opposed to my off the wall ones which I was hoping would seed the conversation. It seems our community gets locked into paradigms rather quickly… I would expect this IF a product was successful in the market, but I’m rather amazed that it has happened after repeated failure (NFC Payment). There are very few opposing views, or forums, for discussing alternatives.. I heard from a very credible source that Best Buy has turned off NFC at POS last week. What is bigger news: they did it? or no one noticed?

    With respect to iWatch.. seems to make sense.. iGlasses…?

    I’m thinking of a brand new app environment where secure apps get secure access to secure data, secure radios and secure devices. All of which Apple is in control of… consolidating their platform management.

    Now for apps like Starbucks or pingit that want to run in the unsecure space.. go for it, but don’t expect any help with customer location or authentication.. Customer will have choice.. use one that instantly integrates to biometrics, or launch the unsecure version, type in your id and password… wait for it…

    If you solve the auth problem.. everything else in payments is just accounting.

  4. You are right I think to focus on authentication. I think it is interesting that for so long, the industry focus was on extending the networks and recruiting users with better experiences. Now the network and usage is nearly pervasive. With a pervasive environment, all that is needed is the ID. You mentioned that in your 2012 article as well and the observation remains important.

    One question I have is: do you think it matters what the quantum of transaction is? Is authentication as important at a $5 transaction level as it is at the $50,000 level? Can authentication be done probabilistically at lower quantums, or do we need ‘hard’ authentication for small amounts?

    • It seems that we have alternating forces of “gravity” in cluster formation. Large payment networks are breaking up as the key drivers for their coalescence (ubiquity, acceptance) are overpowered by other network’s value. The advent of cloud services (which Larry Ellison envisioned in “Grid Computing” 12-15 yrs ago), AND the convergence of the virtual/physical world in mobile has placed enormous value on identification (for remote service delivery). Previously consumers were directly connected to multiple banks, businesses, and services through an ID/Password.. these businesses largely made switching difficult and worked to retain consumers within their entity, which operated within a cluster. Now value is being re-orchestrated… by “switching” consumer connection from individual businesses to a “platform” companies like Apple are looking at a world where trust sits with the Network/Platform and market forces are enabling significant “breakage” of loyalty with traditional businesses. These new Networks can coordinate competitive services that are orchestrated and customized to better serve and individual customer. No longer will consumers have to subscribe to 100 apps and receive junk mail from 100 separate offer sites.. a single trusted network will search this all for you. Sifting through garbage to find what is relevant.

      Regulated businesses, like banking, retain a high degree of protection against this dynamic.. but we see the most friction in how this industry “connects” with the rest of the environment: PAYMENTS. Banks are working to keep everyone in their network, and ensure banking is the “center” of commerce. This is an unnatural configuration (historically), and the more banks work to retain consumer ownership the more they alienate all other commerce players.

      For your question on quantum of transaction. The transaction is becoming richer… or at least its separate parts are being dissected in ways by many new parties. Historically we gave the transaction to the bank for it to manage.. now we see specialists that can add value to it… from retailer side “CRM”, loyalty, risk management and offers… to card holder side incentives, mobile integration…. and new middlemen capable of routing the transaction through the lowest cost infrastructure. My view is that Banks are poorly suited for most of these activities, yet are working to control all of them.

      One of the banks largest threats is authentication… and the degree which other entities can accurately perform this, as well as risk management. As one large grocer told me.. if we saw Fred coming into our stores and buying $100 worth of groceries from us every week for 10 yrs… of course we would take the clearing settlement risk.. mobile operators are similarly positioned to assume some forms of risk.. .integrating to their own carrier billing or post-paid accounts. Social and reputational information may also serve as a new signficant data source for risk management. Different entities have data to assume different forms of risk, a combination of which could perform as well or better than financial services. However risk management IS a core financial services function, and unfortunately it is not discoupled from the network which they support it is an asset monetized separately from the customer relationship at the expense of the merchant.

      Today, there is no signature required for any contactless EMV transaction less than $25.. The need for authentication is for the payment instrument only here and not the consumer (ie PIN). The nature of fraud keeps the bad guys focused on where they can make the most money.. attempting 1000 fraudulent transactions at $5/per is hardly worth their time… real time international wire transfers are at the other end of the spectrum. Thus, transactions do not operate in a uniform environment… each transaction type (amount, purpose, merchant, consumer, frequency, …) differs. Of course “hard” authentication would be great.. but beyond planting chips in our children’s skin at birth it may be hard to pull off in a world where there is no Nationalized ID and tracking (thank God). We have different information on different people.

      A good example here is the Amex Blackcard. Amex always approves every transaction for every blackcard.. They never ever want their customer to face a decline. They work on the back end to ensure the security of this number.. A metaphor that demonstrates commerce is not a science…

  5. Solving user authentication as you suggested does make sense. However, i am scratching my head on how they could go to market with a mobile wallet service like this… If we consider the acceptance side first and look at the US market for starters i can imagine 3 options:

    1. Apple partners with visa/MC. This would be driven by the forthcoming move away from the CP/CNP dichotomy as alternative methods for identifying the consumer are introduced in the rules frameworks. However, this would require support from Visa/MC for Apple’s flavor of authentication, and i am not sure if incentives can be aligned for this to actually work…

    2. Apple would partner with Discover (or e.g., one of the PIN networks in the US), essentially doing the same as PayPal is to accelerate the roll-out of an acceptance network.

    3. Apple builds its own proprietary acceptance NW from scratch by partnering with retailers. This seems like a huge task, and Apple is not exactly known for launching products that are half-baked. However, i suppose Apple might be able to add payments as an “bonus feature” to select merchants that are on-board the passbook train.

    What are your thoughts on this? Are there other better alternatives then these 3?

    • With respect to acceptance. Perhaps first question should be on use case “channel”: eCommerce, mCommerce, POS

      Your examples seem focused on POS, I believe Apple is very focused on eCom and mCom, so “acceptance” challenge is much like gateway provider.. adding a new payment type.. OR authenticating an existing payment (helping merchants w/ CNP). Apple and Amazon have the 2 top eCommerce risk teams in the industry.

      For POS, Amex/Serve and Discover/Paypal offer good examples of using plastic within the “virtual” model. There are no acceptance challenges for plastic (although MA has thrown up new fees for staged digital wallets.. they impacted economics.. not existence) therefore I would expect to see plastic as a “bridge” until someone gets momentum. Your point on how these “wrapped cards” are treated with respect to CP/CNP is completely valid. Rules will likely be taylored.. Visa seems to have had a change of heart with their new CEO.. and working to build partnerships here.

      Nothing wrong with any of your 3 alternatives.. I just don’t think Apple will tackle and of the POS items. Much easier for them to help the consumer buy something in the virtual world in a wonderful Apple controlled commerce process.. and give consumer voucher for purchase (tickets, and merchandise) for them to pick up/use in physical store.

      I think one alternative surrounds the unique “openness” of debit routing. If I had only debit cards in a wallet there are many things I could accomplish, and route outside of V/MA (rules “broken”). Expand this to a consortium of “acquirers” and you have a neatly wrapped wallet settled through an existing consumer payment instrument, with few bank/network rules. Risk is on the merchant.. (card not present), and Apple has tools to help them manage it. Apple could make these stored debit cards look like a QR code.. or like Square and tie to voice..

      Food for thought?

      • “Risk is on the merchant.. (card not present), and Apple has tools to help them manage it.” — Accertify (acquired by Amex) can already offer fraud/risk-reduction tool too, without changing anything in the existing flow.

        Would Apple offer lower merchant’s fee (and act as an acquirer)? I don’t think so? If not, then what and whose problem are they solving?.. What is their value proposition to the consumer and to the merchant (and revenue stream for them)?

      • What is Apple’s Value? to Merchant? Customers… To customers? Great buying experience

        Will apple offer merchants lower fee? nope… can they offer them lower fraud and over all acceptance “costs”? Yep.. just like Amazon does, but I doubt this would be an initial focus.

        Apple has multiple eCommerce merchant capabilities which they COULD offer day one:
        – Use card stored in iTunes account to “autofill” PAN in merchant’s existing checkout. If card is “entered” by apple vs customer it has a different Fraud DNA (ie better)
        – Expand iStore/apple store to sell non apple merchandise.. using Apple’s checkout process
        – API for merchants to integrate online purchases into Apple’s existing wallet (buy in Fandango and store in wallet)
        – Get a risk score from Apple
        – Get an authentication from Apple
        – Obtain customer information from apple in a way that is approved by customer (new secure auth service?)

        Apple’s value is NOT on the cost side.. it is on the SALES side. A very blunt and tactless summary “there are many very affluent, lazy iphone users that value convenience and trust apple with everything… start here”.

        I would add one piece on the acceptance side of things. What if Apple worked with the merchants to identify customers in their store? During purchase AND at checkout. Sure payment could be one of the services.. but hardly the most valuable. If the customer wants to be known.. .they walk up in a Square like experience “Hello Alexander, great to see you.. would you like to pay with the same instrument you used last time? we already have your loyalty card information”..

      • Good explanation, Tom, thank you.

        I can see how that can work with iPhones/iPads (where iTunes account is available “by default”), but what about the remaining 70% of the market (i.e. Android/Win platform)? How is Apple better there than Amazon/Google/PayPal checkout?

      • First I don’t think that POS/Checkout is a focus other than enabling pick-up/usage of what consumers bought on their iphone/ipad. The iPhone consumer demographic here is incredible.. the creme of all consumers use iPhones.

        What if Apple worked with the merchants to identify customers in their store? During purchase AND at checkout. Sure payment could be one of the services.. but hardly the most valuable. If the customer wants to be known.. .they walk up in a Square like experience “Hello Alexander, great to see you.. would you like to pay with the same instrument you used last time? we already have your loyalty card information”..

      • Thanks for the reply Tom, definitely food for thought.

        You are right that I overlooked mCom & eCom, which do seem to be lower hanging fruits.

        Not sure if i fully understand the last paragraph – are you suggesting a “staged wallet”, but only for debit cards, and with their own technology for identifying the walletholder at the POS (e.g., QR codes). To me this does seem like a natural extension of Passbook, i.e., extending it from coupons etc. to also include the payment.

  6. Pingback: Two Major Payments Projects Said to Be Underway at Apple | Bank Innovation

  7. Pingback: Apple iPhoneX .. no more SIMs? | FinVentures

  8. Pingback: Guest Post: A new Apple payment system rumours | News

  9. Pingback: Apple вполне серьезно настроена на использование технологии NFC | Яблочно!

  10. Pingback: Google in Payments: Why Yesterday was BIG News | FinVentures

  11. Pingback: Payment Hype and Delusions of Grandeur | FinVentures

  12. Pingback: Payments – Wrapping, Rules, Acquiring and Tokens | FinVentures

  13. Pingback: Tokens: Merchant Options | FinVentures

  14. Pingback: BIG Changes to NFC: Payments Part of the OS | FinVentures

  15. Pingback: Payments Part of OS: What does that mean? | FinVentures

  16. Pingback: Who do you Trust? | FinVentures

  17. Pingback: Static Strategies and the REWIRING of Commerce | FinVentures

  18. Pingback: Software Secure Element – HCE Breaks the MNO NFC Lock | FinVentures

  19. Pingback: Software Secure Element – HCE Breaks the MNO NFC Lock | Starpoint Blog - Finventures

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s