Apple's Mobile Payments: Not Bluetooth, But Maybe Closer Than You Think

Does Apple really plan to use Bluetooth instead of NFC for mobile payments? Probably not, but you'd think so based on the buzz over the past week from the Apple-watching echo chamber. The consensus: All iPhones and iPads now have Bluetooth built in. It will take years for NFC to get into enough phones to matter. Ergo, Apple will use Bluetooth for its mobile wallet and sweep the table.

That's unlikely—if widely deploying a technology was the problem, contactless cards would have wiped out magstripes years ago. But will Apple use Bluetooth for payments? We may know by the end of the summer.

The "Apple will use Bluetooth to destroy the cash register" line has been showing up all week in Apple blogs and the IT trade press. The comments all appear to stem from a report last month from retail analyst Pablo Saez Gil of the U.K.-based analysis firm ResearchFarm, in which Saez Gil points out the obvious (NFC-based mobile payments aren't exactly taking off like a rocket) and the less obvious (Apple has upgraded its iPad and iPhone Bluetooth so it can now be used the way NFC is).

Let's be clear here: In his report, Saez Gil qualifies his speculation. Right after pointing out Apple's Bluetooth upgrade, he adds, "Whether [Bluetooth] will play a role on m-payments or not remains to be seen, but the technology is in many ways superior to current NFC offerings and can enable new features in m-payments such as long-distance check-outs."

Here's how that translates after a month in the echo chamber: "Apple's secret plan to kill the cash register."

What's wrong with this picture? (Leaving aside the fact that no one who actually understands retail IT or mobile payments would actually refer to a "cash register.") The reasons are old hat to anyone at a retail chain: Not everyone has an iPhone. Plastic cards are ubiquitous. Not everybody uses plastic instead of cash. There are transaction security and loss-prevention issues. The easy part of a card transaction is the swipe or tap or button-push; the harder part is the complicated back-end arrangement, but hardest of all is changing customer behavior.

So for an Apple Bluetooth-based mobile payments system to bump the existing in-store payments stack, first it would have to address all those problems. Then it would have to convince retailers to make a major POS investment (that is, another major POS investment, after just adding EMV and contactless). And then any new system would have to coexist with the existing payments stack during a long transition.

No matter how much other retailers admire the glitz of Apple's own stores and are ready to buy iPads for in-store mobile payments—always equipped with sleds for reading magstripes—that's just too big a step to be credible.

Then there's the fact that even Apple Stores aren't using anything other than magstriped plastic cards for in-store mobile payments—at least not yet.Then there's the fact that even Apple Stores aren't using anything other than magstriped plastic cards for in-store mobile payments. Customers can't even charge a purchase to an iTunes account, and Apple isn't using Bluetooth or NFC for payments—at least not yet.

Apple may indeed intend to use Bluetooth for payments. But what if that's not the case? Then how to explain putting the most advanced version of Bluetooth on all its new devices, if not for payments? After all, as the Apple watchers point out, Apple has a long history of not jumping on the latest and greatest technologies.

True enough. But Apple also has a long history of locking in customers with technologies that no one else is using. Maybe this new version of Bluetooth (dubbed Bluetooth 4 or Bluetooth Low Energy) is simply a good product idea in Apple's eyes. Anything that forces customers to buy peripherals from Apple is viewed kindly in Cupertino.

That particular Apple tradition goes back at least to the earliest days of the Mac. Keyboards and mice? Macs used the Apple Desktop Bus connection, not the PC's PS/2. Mac printers used RS-422 serial connections, not the PC's parallel ports. Mac modems used RS-422, too, instead of the PC's RS-232 serial ports. Mac video monitors were just a cheap converter away from being PC VGA monitors, but that still made it easy for Apple to get its everything-should-just-work Mac customers to simply buy everything from Apple.

Today, Apple sells Bluetooth peripherals that, according to the packaging, require Apple hardware to use. Actually, they mostly work fine with PCs. But Apple doesn't mind not selling to the PC crowd, where almost all other vendors have lower prices for pretty much the same products.

And if Apple can get all its iPhone, iPod and iPad customers to believe that they need the latest-and-greatest version of Bluetooth for their peripherals—and from Apple, of course—that's a much more profitable and less risky reason for that Bluetooth strategy than mobile payments.

Will there ever be an Apple mobile payments rollout—and what will it look like? Apple has certainly filed a batch of mobile-payments-related patent applications (several of which refer to using NFC), but we're still waiting for anything more than rumors from Apple. It may never happen; the slow-motion launches of Google Wallet, PayPal's in-store payments and ISIS's mobile wallet suggest that rectangular plastic cards are still the favorite payment medium for both customers and retailers, and Apple knows it.

But if it's the season for thinly supported predictions about Apple's entry in the mobile payments race, here's one: If it's coming soon, Apple will announce it no later than mid-August, for rollout in both Apple Stores and—drum roll, please—JCPenney.

What's the evidence? Well, Apple will need a major chain on board—Apple Stores just don't carry enough products to prove the concept. And with ex-Apple Stores boss Ron Johnson as CEO, JCPenney is the logical choice, especially since Johnson recently told analysts that at his chain's next earnings call in mid-August, "we will then talk about our new technology platform, how we're going to win with technology and become—I think—the leading retailer from a technology perspective."

Sound crazy? Maybe so—but it's a lot less ridiculous than the idea that Bluetooth will kill cash registers.