It's not difficult to understand that the plastic in our wallets is outdated. In the U.S., we've been using debit cards for decades. Our country is so far behind in payment technology that we still use magnetic strip cards, which nearly all of the industrial world has moved away from.
Mobile payments options are nothing new, but so far, the opportunity for ubiquitous mobile payments has outweighed its realization. To move away from the current systems, it's going to take a big player to get mobile payments to really take off. Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) are trying to make it happen, but only one will likely come out on top.
Google's lost wallet
Investors would be hard-pressed to find a tech company more innovative than Google. The company's mobile operating system dominates the market, its online advertising is second to none, and it builds autonomous cars and is working on robots to boot.
Two years ago, Google set out to try and transform how consumers pay for their goods with Google Wallet.
When Wallet launched, it announced partnerships with MasterCard, Macy's, Sprint, and others. It definitely wasn't a comprehensive list, but it was a good start. One of the grandest ideas for Wallet was that it would eventually replace all of the plastic cards in our wallets, dwindling down our entire debit, credit, and loyalty cards into one simple card. Not only that, it would bring mobile payments in ways we had never seen.
Now, we're a couple years into this whole Google Wallet thing, and even Google itself has scaled back its ambitions. The company just released a prepaid debit card that's connected to the Wallet account and can be used for point-of-sale purchases. But it's a far cry from the mobile payment system investors and consumers anticipated back in 2011.
Of course, it's not all Google's fault. Businesses have yet to decide on a mobile payment system that works for everyone. Getting merchants, debit and credit card companies, payment processors and consumers all on the same page is difficult. But that doesn't mean it's impossible. Apple has both the technology and the consumer accounts to make it all happen.
The case for Apple
Apple's case for unleashing a mobile payments system for physical goods has been building for a while, but recent comments from Apple's senior vice president and CFO, Peter Oppenheimer, has provided new evidence. In his latest conference call, Oppenheimer said, "The mobile payment area in general is one that we've been intrigued with. That was one of the thoughts behind Touch ID." He went on to say that the amount of commerce that happens on its iOS platform versus the competition is a "big opportunity." Though it's clearly not a guarantee Apple is moving in this direction, it's a lot more information than a historically tight-lipped Apple usually provides.
A recent article in The Wall Street Journal said Apple's Eddy Cue, who's in charge of Apple's iTunes and App Store, has already pitched a mobile payment option through iOS devices to industry executives.
Apple's opportunity in the space is truly massive, and it trumps Google's current opportunity for two reasons. The first is that Apple has more than 575 million iTunes accounts linked to credit cards. If Apple chooses to implement a mobile payment system, that's a lot of people who don't need to set up an account for payments. Unlike Google, which doesn't have near the same amount of payment accounts, Apple has already jumped through that hoop. Apple also has hundreds of millions of iPhones and iPads that would would be ready for mobile payment implementation.
Which leads us to Apple's second advantage: iBeacon. The company recently launched iBeacon in its own stores and on a trial basis at some Macy's stores and a few MLB ballparks. The technology uses Bluetooth low enerergy (BLE) that can wirelessly communicate a small amount of data between a device and receiver. iBeacon is being used in Apple's stores to send product information to a users iOS device when they walk past certain products. But it has much more potential than that.
iBeacon could be used for wireless mobile payments for physical goods in stores, by allowing users to pay for products by simply walking out of the store. The iBeacon technology could be turned on by users and then charge their account when they walk out of a store with a product. The advantage of iBeacon over near-field communication is that it can send a signal up to 150 ft, longer then NFC, and can be used in any mobile device with Bluetooth. NFC requires a special chip in each mobile device in order for it to work.
Integrating a mobile payment system with iBeacon may be a little ways off, but Apple certainly has the potential to make it happen.
Forrester Research projects that U.S. consumers will spend $90 billion through mobile payments by 2017. Like Oppenheimer said, mobile payments are a big opportunity. There are smaller players already in the space, but Apple's name recognition, existing technology, and iTunes accounts give it a serious advantage. At this point, it seems Google is falling behind in the mobile payments space, while Apple continues to build its assets.
But just like Google, Apple has had limited success with its current iteration of a mobile wallet, Passbook. To overcome this, Apple's strategy should be focused on simplifying a payment system between its iTunes accounts and its devices. If the latest reports prove true, then Apple is already walking down that path. I think Apple is ready to move in this direction because of its success with its Touch ID sensor. Not only is this a nice feature for Apple's devices, but it certainly makes for a convenient way to pay for products. With many retailers already testing out mobile payment systems, the time is right for Apple to enter the market and create a mobile payment standard.
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