Two major events occurred in September affecting the mobile payments ecosystem—Apple’s recent iPhone 5S and 5C reveal, and Google’s expansion of its Wallet app to non-NFC smartphone users. Both of these events appeared to move the vision of a mobile payments future based on NFC further from reality. Did they?

Is Google Abandoning NFC?

Google launched an NFC-based payment app, Google Wallet, back in September 2011. Even after two years on market, however, Parks Associates’ data shows that only 3% of U.S. smartphone owners currently use the app. In addition to the problem of limited merchant locations accepting Google Wallet, the company’s NFC efforts have been frustrated by the mobile carriers. Verizon, AT&T, and T-Mobile have all banned the use of Google Wallet by their subscribers as a strategy to delay this market until their own NFC-based wallet (ISIS) is finally market ready.

Just last month, Google expanded the Wallet app to phones without NFC. These new non-NFC users will be given access to the types of services currently available through Apple’s Passbook, like storing loyalty cards and coupons. It also allows users to send money through Gmail to anyone with a bank account. This expansion does not mean Google is abandoning NFC, and in fact the company has stated it will continue to support its NFC users and work with its NFC ecosystem partners. Rather, the Wallet expansion allows Google to add functionality to improve the Wallet experience while the NFC ecosystem continues to mature, and also drastically increases the number of users Google will be able to claim as Wallet users, even if these new users cannot pay at a terminal.

The Big Wait: Apple’s Reluctance to Integrate NFC

Everyone with a stake in the success of NFC is waiting for Apple to embrace the technology standard and do the heavy lifting on marketing and consumer education that will be required to move this market forward. No current industry player has committed nearly enough resources to NFC or to mobile payments more generally. Parks Associates data shows that only 2% of U.S. smartphone owners think they have NFC on their phones, when we estimate the true figure to range between 10% - 15%. When (if) Apple finally does integrate NFC, many Samsung, HTC, Nokia, and BlackBerry users will be very surprised to learn they have had this functionality all along. So what is Apple waiting for?

Apple has not yet incorporated NFC into their devices because the ecosystem is still relatively immature. While most major handset OEMs not named Apple have begun integrating NFC as a standard technology on new smartphone models, there are simply not enough locations where NFC may be used to purchase goods. We have not yet reached the “tipping point” of large, national retailers upgrading their POS hardware to accept NFC payments, meaning consumers who do have NFC on their current handsets— along with a mobile wallet application—can only use that mobile payment service very sporadically. Apple is unlikely to launch any new consumer service, technology, or app until the user experience will be easy, intuitive, and widely available, and the NFC ecosystem is simply still too immature for Apple to make that leap.

That being said, Apple has laid the groundwork for a mobile wallet solution. The Passbook app already serves as a “storage” wallet, that can hold transportation tickets, coupons, and gift cards; when Apple feels the time is right, it will likely upgrade Passbook to include transactional capabilities. Notably, consumers will already be aware of the Passbook app and how to use it when that new functionality is launched. The biometric technology incorporated in the new iPhones will also be a major selling point for an Apple mobile wallet; this addresses one of consumers’ chief concerns about such apps, that is, the security of their personal financial information. Still, there is no guarantee that Apple will choose to build its wallet on NFC rather than any of the alternative technologies currently competing for the mobile payments spotlight.

NFC vs. Competing Technologies

When Apple does launch a real, transactional mobile wallet, the company can choose to support the wallet app with any of several technologies, including NFC.

Barcode-based appsstore value in a pre-paid account. At checkout, a barcode is shown on the smartphone screen, which the retailer scans with a special barcode reader.

· Example: Starbucks

· Upside: Merchants love it; pre-paid accounts give merchants direct control over relationship with wallet user and special scanner purchase cheaper than replacing entire POS system

· Downside: Very unlikely that consumers will tolerate separate barcode wallets for each retailer; barcode scanning has much more potential if a major third-party introduce a barcode scanning app that works across many merchants

Location-based apps use a consumers’ location to detect he or she is in-store. Payment is sent from consumer to merchant over Wi-Fi or mobile data connection.

· Example: Square Wallet

· Upside: No special hardware required in handset or at POS

· Downsides: requires data connection, requires geo-fencing (big battery drain), and is predominantly used by SMBs, not large merchants

Bluetooth-based apps use Bluetooth Low Energy to transfer tender.

· Example: PayPal’s new version of its mobile app

· Upside: Does not require GPS or mobile data connection

· Downsides: Requires merchants to have special hardware (though inexpensive). It currently has very low market traction, being so new, but could be a valid competitor in the future.

Given the early state of the market, each of these “alternative” approaches could ultimately lead the way to mass market mobile payments adoption. Yet, there are reasons NFC has, to date, been the leading technology under consideration by most mobile payment players. NFC…

· Is very secure

· Is a relatively mature technology standard

· Requires very low battery use

· Does not require mobile data or Wi-Fi connection

· Is very easy to use, mimicking current consumer check-out behavior

· Is supported by the payments industry (payment networks, banks, POS system manufacturers)

· Is supported by the mobile carriers

So, does a September full of mobile payment announcements sans NFC predict the technology’s doom? Not by a long shot. Instead, expect a short-term mobile payments future where developers make use of several payments technologies—likely simultaneously—to provide the best possible user experience and widest possible adoption by both consumers and retailers.