Will Mobile Retail Payments Be the Next Big Thing in Tech?

Apple could be poised to profit the most if smartphones replace debit and credit cards at the store. Amazon, Google, and eBay lag behind.

Jan 30, 2014 at 11:30PM

Recent breaches in debit card security at several retail stores highlight the need to beef up the protection of customer information. In Europe, most cards use imbedded microchips instead of relying on the infamous magnetic strip on the back to transfer data to point-of-sale machines. Will that catch on in the United States as well?

It might, though over the long term another innovation may be the best way to handle debit transactions. It also might benefit the world's No. 1 tech company and its investors, too.

The iPhone as a cash register 
If the rumors that Apple (NASDAQ:AAPL) is in discussions with retail industry executives are true, at some point in the future your iPhone (or possibly a wearable device like the long-rumored "iWatch") could be used when you go to the store to make a purchase. Just point and click. The company has filed a patent for a secure two-part in-store communication system. 

This could mean a return to higher growth for the company and big returns for Apple investors. The maker of the iPhone already has several hundred million credit cards on file in its iTunes and App store database. It could develop an app that interfaces wirelessly back and forth between the database and the store computer system. Apple would take a small cut of each transaction, and that could probably add several billion a year to its top line. The margins are bound to be very high for something like this.

A leg up
Although the industry is in its infancy, Apple probably has a leg up on its competition because it controls all the parts needed for a payment system --- hardware, secure transaction technology such as the fingerprint sensor used in the new iPhone, software (it gets to approve all apps), and stored financial information.  

Amazon.com (NASDAQ:AMZN) might have a big advantage in retail experience, and probably has much of the needed software for accessing lots of customer credit and debit account information. It currently lacks the hardware and technology to do the whole job, however. The company would need to develop some type of payment device or acquire a company to do it, and this would probably require the company to divert funds away from its successful e-commerce and cloud computing businesses. Apple, with its huge cash pile and head start, doesn't have those worries. 

Google (NASDAQ:GOOGL) has bits and pieces of the whole pie in place but lacks the penetration of Apple worldwide. It has Google Wallet, but it only works on certain smartphones purchased domestically and at merchants that use PayPass and PayWave .The Motorola division produces mobile devices, but it commands only a small portion of the market right now.

There are over 300 million iPhones in service currently, and most could be easily converted to a mobile payments device. Any new device would of course have the needed technology and apps already in place. Google has some catching up to do. The company might want to stay put and focus on its cash cow search business. 

Consumers can currently pay for in-store purchases using their PayPal accounts too.  PayPal is one of the two most important segments (the other is the online marketplace) of eBay (NASDAQ:EBAY) and currently handles over $180 billion in transactions annually. The company is planning on more growth from this business and additional revenue from the retail side, as it expands, would help. However, like Amazon, eBay doesn't offer a physical payment device yet and would probably lag behind Apple and Google in the business, at least initially, because of this. 

Foolish conclusion
A somewhat overlooked result of the recent theft of debit card information at several retail outlets is the opportunity to profit from a revamped mobile payments industry. One tech giant, Apple, appears to have all the pieces in place to benefit from the trend if it materializes. Some pretenders to the throne such as Amazon, Google, and eBay have some of the puzzle pieces, but are lacking in one or more areas and would have to spend some serious cash to overcome that.

Three great long-term investments
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Mark Morelli owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, eBay, and Google. The Motley Fool owns shares of Amazon.com, Apple, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers