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Will the iPhone replace your credit card?

February 09, 2011

| Money Rates Columnist

If you've ever had the displeasure of having to swipe your credit card several times at the cash register before your transaction was approved, you may have been heartened to hear recently about what Apple is purportedly working on.

The big rumor in the tech industry is that Apple will be installing Near-Field Communication (NFC) technology on its next generation of iPhones and iPads, allowing users to wave their devices within four inches of a checkout receiver to pay for items.

Bypassing credit card companies

Although Apple hasn't confirmed the rumor, several sources note that Apple has hired several experts in NFC technology recently. They also note that Apple stands to make a tidy sum if its iPhones and iPads can bypass the credit card companies and the large fees they charge each time you use plastic. Customers using the technology could buy anything--from groceries to a household appliances--without worrying about credit card rates.

Will the iPhone replace credit cards? According to the magazine Mobile Industry Review, if Apple employs the system and makes it easy for its customers to use, it could quickly become a dominant player in the marketplace and even pose a threat to credit card companies. More than 160 million different credit cards have been used on Apple's iTunes store, so the game-changing tech company has already shown success in getting people to do business with it.

NFC technology not widely used in U.S.

Others aren't so sure. Although NFC is used widely in Japan and parts of Europe, it hasn't caught on in the United States--even though the technology has been around since 2004. The key will be in getting payment terminals out to merchants. Apple reportedly has created a prototype terminal and is considering subsidizing them to encourage chain retailers and small businesses to carry them, Bloomberg News reported.

Another obstacle is the background agreements that would have to be set up between all the parties involved in any transaction--banks, merchants, phone makers and wireless carriers. According to Computerworld, NFC will require a collection of systems and technologies to be integrated.

Credit card companies have already ironed out all those connections, but Apple will be starting from scratch, so it may take time before a purchase using NFC technology can be set up and executed in the type of seamless way people expect from Apple.

But it can be done. The NFC technology is used in Japan and Korea, and in many large European cities for mass transit systems. It was also successfully tested on the BART transit system in the San Francisco Bay Area in 2008.

Nokia phones and smart phones from other manufacturers have come equipped with NFC chips for years, but users, according to The Week magazine, have been slow to adopt the technology in the U.S. The Samsung Nexus S phone can also read NFC tags. Starbucks uses a different type of technology that allows iPhone, iPad and some Blackberry users to pay using an application downloaded to their device.

If the rumors are correct, these capabilities will arrive on the market soon, so check back to see what effect this technology has on the credit card industry.

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