The next-generation iPhone and iPads could easily become your wallets, as Apple is planning to add Near Field Communication (NFC) chips in to its upcoming iPhone 5 and iPad 2, thereby allowing a user to use those devices to make instant payments for purchases, according to a report from Bloomberg.

Near Field Communication or NFC, is a wireless communication technology that allows exchange of data between devices at a distance of about 4 inches. The technology, which is primarily used in mobile phones, combines the interface of a smartcard and a reader into a single device.

An NFC-enabled device can communicate with both existing ISO/IEC 14443 smartcards and readers, as well as with other NFC devices, and is thereby compatible with existing contactless infrastructure already in use for public transportation and payment.

This is a huge as well as significant development, considering the potential impact it will have on the payment system and it could be a threat other payment processing firms such as Visa, Mastercard and EBay's Paypal.

Both products (iPhone 5 and iPad 2) are likely to be introduced this year, Richard Doherty, director of consulting firm Envisioneering Group told Bloomberg, citing engineers who are working on hardware for the Apple project.

The latest development could boost Apple's already strong profits by attracting more users to its iTunes store for the simple reason that they need not pay credit card processing fees. iTunes is an Apple service that lets consumers buy digital movies and music.

Apple Vs. Google

Moreover, Apple could score on a vital area versus Google with NFC.

Though Google has NFC in its Nexus S smartphone, it didn't take off as Google doesn't have a good payment processing system. Despite Google have its own online payment processing service Google Checkout, customers seem to prefer PayPal.

In the case of Android, the wide adoption of NFC also depends on how quickly the handset makers are embedding the technology in to their devices.

On the other hand, Apple does have a proven payment system through its iTunes and has credit card and purchase information of more than 100 million accounts.

Also, the new regulations will make payments through debit cards cheaper than credit cards, implying that Apple entering the right field at right time.

The new laws is said to make credit cards more costly for all users and inaccessible for many low-income families and people with bad credit.

If Apple adopts NFC technology, it would give the technology the desired boost.

As the technology will be available on millions of Apple devices, it will force as many retailers to adopt NFC.

The key roadblocks for low adoption of NFC are there is no hardware support for this technology and no sophisticated payment processing system like the one for credit cards.

To overcome this hurdle, Doherty said that Apple has developed a prototype payment terminal for retailers and is considering subsidizing it or even giving it away free.

Meanwhile, Cupertino, California-based Apple is also planning to start a mobile payment service.

"Apple is considering starting a mobile payment service as early as mid-2011, Doherty said. It would revamp iTunes, so it would hold not only users' credit-card account information but also loyalty credits and points," Doherty said.

In addition, NFC-enabled devices could boost Apple's iAd mobile advertising platform as Apple can find out where customers are putting their money and thereby target its ads more accurately. iAd, developed by Apple Inc. for its iPhone, iPod Touch, and iPad line of mobile devices, allows third-party developers to directly embed advertisements into their applications.

Though Apple has not confirmed the latest developments, it is still an interesting idea.

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