Quick Thoughts: For Payments, Bluetooth Puts a Beat Down on NFC and WiFi

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–          Bluetooth Low Energy (BLE) has big advantages for mobile payments – 160 ft range, low power, 1Mbps speed, device ubiquity, low cost, no SIM requirement – beating NFC on every spec.

–          While Samsung and other Android licensees have supported BLE, Google announced native support in June, matching iOS and Windows8, and spurring 3rd party development.

–          Apple’s iBeacon, Passbook, fingerprint scanner and refusal to support NFC point to a proprietary cloud-based mobile payments solution based on BLE in the future.

–          PayPal will be much faster to market with its similarly named Beacon cross-platform, BLE-based payments system, and will lever its e-wallet penetration and merchant relationships.

Note to SSR Clients – My Colleague Howard Mason (Financials) and I will be hosting a conference call on “The Future of Payments” tomorrow (Wednesday, September 18) at 2PM EDT. Please contact your SSR sales representative for dial-in information and supplementary materials.

Lost in the rigmarole around the announcements of iOS7 and the new iPhones, is the makings of an Apple mobile payments strategy. Tim Cook and company have resisted the insistent calls of the credit card players and wireless carriers to add Near Field Communications (NFC) standard support – despite a de minimus cost, neither the 5C or the 5S include an NFC chip. Instead, Apple will push an alternative approach based on a technology recently added to the Bluetooth 4.0 standard, called Bluetooth Low Energy (BLE). Combined with its nascent e-wallet offering, Passbook, and its new fingerprint scan security, Apple has the building blocks of a comprehensive mobile payments solution, leaving the unanswered question of why it is taking them so long to put the blocks together.

bluetooth specs

Let’s take a moment to meet BLE. The technology was introduced by Nokia in 2006, under the name Wibree, intended as a much lower power alternative to Bluetooth. In 2010, Nokia convinced the Bluetooth committee to subsume Wibree into the standard as a branch of the main specification. Subsequent Bluetooth radio chips from most semiconductor suppliers integrated the capability into standard silicon that has been implemented in most mobile devices around the world. BLE offers performance specs slightly less robust traditional Bluetooth – shorter range (160 ft vs. 330 ft), slower speeds (1 Mbps vs. up to 3 Mbps), no voice support – but offers considerable advantages as well – faster connection times (6ms vs. 100ms), better security (128bit vs. 64bit) and lower power draw (50-99% lower, depending on use case) (Exhibit 1). Initially envisioned in health care and fitness applications, it turns out that BLE is ideally suited to in-store mobile payments.

To date, mobile payments have been assumed to be the province of NFC technology, but consider the specification differences. NFC has a distance limitation of less than 8 inches – consumers must almost touch their phones to the point of sale terminal to make the connection. In contrast, BLE’s 160 foot range mean that connection can be established from anywhere in the store, untethering payment from the POS terminal and check-out line. Power draw between the two standards is similar, but NFC offers less than half the data throughput, and takes as much as 15 times longer to establish a connection. Other approaches to mobile payments, such as Starbucks successful program, have used WiFi for connection, but while this standard offers very high performance and relatively long range, it has proven to be a considerable battery drain, with power consumption more than 20 times that of BLE.

Besides Apple, other technology companies have been jumping on the BLE bandwagon as well. Google, which had been a NFC proponent in the past, signaled its intent to change course at its June 2013 I/O conference, where it announced native mode support for BLE in all future versions of Android and dropping NFC Loyalty Card support from its Google Wallet at the same time. In fact, most Android licensees have already implemented BLE, including Google itself, which offered BLE on the house branded Nexus 4 phone introduced a year ago and on the recently launched Moto X. Microsoft, which is in the process of acquiring BLE inventor Nokia, has been a long-time advocate for the technology and supports in native mode for all forms of Windows 8.

Mobile payments pioneer Ebay has also gone all-in on BLE. Its payment arm PayPal has announced the confusingly named Beacon in-store payments system (N.B. I understand that Apple is pretty rigid about doing its own thing, but couldn’t Ebay and Apple have avoided using the nearly exact same name for their BLE offerings?) Unlike Apple’s iBeacon, which is characteristically closed to non-Apple devices, PayPal’s Beacon will operate from an App that will be available on iOS, Android and Windows8 from the start. The merchant would plug a small USB-based dongle into their POS register (8 different cash register brands are supported at launch) with boosters available to plug into electrical outlets and extend the range. When a customer with a BLE capable device – that is just about all of the smartphones and tablets sold in the last two years – walks into a store that he/she has specifically authorized via the downloaded PayPal App, the device will automatically connect to the Beacon system as it comes in range. From there, Beacon can pull up the customer records for the merchant, transmit messages to and from the customer, and execute transactions without the customer having to wait in line for check-out.

With Beacon, and almost assuredly, future BLE-based payments solutions from Apple, Google and others, the customer doesn’t have to DO anything to be connected in a store that they have pre-authorized in the App. Running the App has negligible effect on their battery life. For the merchant, the hardware is a cheap and easy add-on to existing systems. In a few years, we’ll all be shopping this way.

For our full research notes, please visit our published research site.

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