Why The NFC No-Show For Apple? It's The Apple Experience

Apple on Tuesday (Oct. 4) made the boldest—and smartest—mobile payment move it possibly could: nothing. Based on almost any metric—customer experience, market share domination, ROI/profit enhancement, pushing the sales of non-payment hardware/software, etc.—the right course now is for Apple to sit back and let Visa, Google, PayPal, Square and ISIS fight it out as they pay for the infrastructure. Then, when the bugs have been worked out so Apple can deliver its legendary "it just works" customer experience—then jump in.

Not unlike IBM in the 80s and 90s, Apple is in the highly enviable position that it can wait until it's time and then still dominate the market when it makes the move. Indeed, it might even be easier and more effective to do it that way. But that strategy will also determine who will define the retail NFC standards that matter—the ones on the checkout counter and in the retailer's datacenter. And that won't be Apple.

How much clout does Apple have by way of the iPhone right now? To get a hint, let's look at the deal the company cut with Sprint. According to some details from The Wall Street Journal, Sprint has signed on to buy more than 30 million iPhones over the next four years. Estimated cost: $20 billion at current prices. And Sprint will likely have to subsidize those phones by $500 each, or $15 billion, to sell them.

That's not confidence in the iPhone. It's desperation to have the iPhone, from a mobile carrier that already has all the Android phones it needs—including the only one that currently does mobile payments with Google Wallet. Sprint wants iPhones because of that Apple Experience (sort of like Disney World, complete with the lines).

When Apple does NFC mobile payments, it will have to provide that elegant, just-works experience, too. But right now, that's impossible. Apple could create the perfect NFC-enabled iPhone and it wouldn't matter, because mobile payments depend on the POS devices on retailers' counters and the back-office systems that process the transactions. If they don't work, that perfect iPhone becomes a pretty piece of junk, and the Apple Experience is toast.

Right now, Google Wallet is suffering from those early kinks in the system: Widespread reports of transactions that won't go through or that take an hour to reconcile; POS terminals that are supposed to work with both NFC phones and contactless cards but don't actually work with either; customers and associates who aren't sure how things are supposed to work, so they can't even tell for sure if something has gone wrong.

That's not necessarily Google's fault, any more than it would be Apple's—there are lots of independent parts in any payments system, and most of them are outside the direct control of any one player.That's not necessarily Google's fault, any more than it would be Apple's fault (or ISIS' or PayPal's). There are lots of independent parts in any payments system, and most of them are outside the direct control of any one player. That's the joy Google is feeling now. Apple has the luxury of being able to wait until retailers and processors and Google have the glitches worked out.

Then, once Google has laid the NFC tracks, Apple can come in and drive its Magic Kingdom train down the main line.

Does that mean Google gets to decide the de facto standards for NFC payments? Sure—some of them, at least. With more NFC terminals in place sooner than anyone else, Google has already dictated what the POS PIN pads will do—what the interfaces will be and how they'll connect to back-office systems. Visa will get to set EMV requirements of its own, and Google will play along, because keeping Visa (and MasterCard and American Express and Discover) happy will make Google Wallet stable faster.

Once those de facto standards are settled, Apple can decide whether there's enough money in the low-margin payments business to justify extending iTunes payments to in-store purchases, riding on top of Google's network of POS devices. Or Apple could buy into Google Wallet and just keep collecting big margins on phones. Or Apple could cut deals with the card brands to create a mobile wallet of its own.

But when will all that happen? Payments pundits to the contrary, it was never going to happen this week, for reasons every retailer already could have told them. Realistically, Apple's Tuesday announcement was a product refresh for the holiday selling season—price cuts all down the line, and only one new product, the iPhone 4S, that's really just a beefed-up version of the existing iPhone 4. They'll all be in the stores in plenty of time for Black Friday, so the timing makes perfect sense.

Apple doesn't need the holiday season to move truckloads of phones. That's why new iPhones arrived in mid-summer in 2007 (iPhone), 2008 (iPhone 3G), 2009 (iPhone 3GS) and 2010 (iPhone 4).

But a new NFC-based payment system? The worst possible time to roll that out would be a month before the holiday selling season starts. Retailers would either have to scramble to support it (you're going to touch the POS back-end software in late October? Oh, no you're not) or forgo it until the new year. Most would wait. (There's a reason Google announced in May and planned its rollout for "the summer," even if that meant the last half of September. That schedule left time for software tweaks before everything was locked down for Black Friday.)

A payment system that iPhone owners have heard about but can't use? That's not the Apple Experience. Even if it worked perfectly where it was installed, it would be viewed as a disappointment or even a failure.

Instead, it's Google Wallet that will get hammered on this holiday season in New York, Chicago, Los Angeles, San Francisco and Washington, D.C. Customers will blame everything that fails on Google (no matter whose fault it actually is) and by the new year, the worst of the stress testing for Google Wallet's transaction network will be over.

By June, it might even be ready for the Apple Experience.