Is Apple Getting Ready to Jump Into Mobile Payments?

Ever since Apple (NASDAQ: AAPL  ) introduced the Passbook – a neat app that allows consumers to store loyalty cards, tickets, gift cards and passes on their iPhones – talk has heated up about exactly when the tech giant will enter the field of mobile payments.

This year is no different, and the conjecture has begun as to whether Apple will include Near Field Communication technology, which would allow iPhone users to make mobile payments to merchants who use NFC, in the iPhone 6. Apple, as usual, is silent on the issue.

Does Apple want in?
The rumor mill began grinding early this year, after The Wall Street Journal published an article stating that the head of Apple's iTunes and App Store, Eddy Cue, had met with outsiders regarding the possibility of Apple processing payments for physical goods on its devices. The company's 600 million iTunes account users has long been seen as a starting point for any movement toward a mobile payments platform.

As encouraging as this looks, it is still unclear just how interested Apple is in developing a mobile wallet. In the past, Apple executives have been leery of jumping into the mobile payments arena, expressing concerns about consumer backlash if problems with merchants arose.

It seems unlikely that Apple will add NFC capability to its new iPhone, for several reasons. Currently, the mobile payments landscape is littered with many players, each with their own system. The confusing array of options hasn't made inroads with consumers, many of whom are still concerned about security issues.

According to a recent Federal Reserve study on mobile services, the incidence of smartphone users utilizing their phones for mobile payments has stayed flat over the past year. Further, the two types of mobile payments used the most by respondents don't even use NFC: Starbucks mobile payments system, and eBay's (NASDAQ: EBAY  ) PayPal in-store system.

An alternative plan may be in the works
All this is not to say that Apple isn't cooking up a plan of its own. If NFC isn't part of the picture, a viable alternative would be for Apple to position itself as a direct competitor to eBay's PayPal. The talks with industry executives to which The WSJ referred might be a plan to partner with retailers and other vendors, much as PayPal has done with big-box stores and other retailers. In addition to these discussions, Apple has tapped one of its own executives to create a payments division within the company. 

Can Apple be satisfied with occupying a niche in mobile payments? There is no doubt that such a scenario has worked well for eBay. Paypal brought in 41% of eBay's total revenue last year, processing $180 billion in transactions with 143 million active accounts. With its 600 million iTunes accounts, Apple no doubt has the potential to give PayPal a run for its money.

Apple will choose its own time to launch a mobile payments system, which appears to be under construction. The chances of it doing so with the debut of a NFC-enabled iPhone, however, seems unlikely.

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  • Report this Comment On April 17, 2014, at 12:21 PM, FTownBryan wrote:

    Amanda, agree that NFC is unlikely. I think you're being too conservative to think that AAPL is just taking aim at Paypal. I think they have something much bigger in the works. Think VISA,MC in the cross hairs. Fingerprint was the enabling technology. Everything else is software, where AAPL has no equals. This is often overlooked in AAPL analysis and I believe it to be the next great growth driver. iWatches, iPhone revisions, iPads, etc have little chance of making the step leap to 1200+. Perhaps iTv if AAPL can get the content to compete head on with cable, but I see this as unlikely.

  • Report this Comment On April 17, 2014, at 2:36 PM, hembreeder wrote:

    143 million active accounts?

  • Report this Comment On April 18, 2014, at 6:08 PM, PhilipCohen wrote:

    “Under the EMV system consumers will use a smartcard embedded with a microchip and provide their PIN to complete a transaction. The chips make reproducing a card difficult for criminals. Even if the credit card information is gathered, without the chip the card is useless.

    “In early February [1014], the two credit card companies announced they plan to end the current swipe-and-sign method by 2015 …”

    EMV=NFC. But wait, eBay’s Johnny Ho has told us that NFC stands for “Not For Commerce” and PayPal’s David Marcus has said that “NFC will fail to gain mass adoption … the NFC payments debate will slowly die in 2013.”—LOL …

    Oh, dear me, who are we to believe? eBay’s headless turkeys who have a mere ~1.1% of the world’s payment business, or the professionals at MasterCard/Visa who have ~90% of that business?

    Then, Johnny Ho has already answered that question for us: "Even though people think I'm an expert at technological innovation, my own instinct for technology was frozen in place in 1982." - John Donahoe (26 Sep 2007) ...

    On the first part, who could possibly think that? On the second, a few of the only true words that Johnny Ho has ever spoken ...

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Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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