Here's How Apple Inc Will Make Money Disappear

Question: Who uses a rotary telephone or a typewriter today? The answer: Very few people. Like a magician performing his act, innovation has made many things disappear and will continue to do so. What could be the next everyday item to go "Poof!"?

If Apple (NASDAQ: AAPL  ) has its way, it could be paper money. CEO Tim Cook suggested that the company was working on some sort of mobile payments platform earlier this year. 

Globally, 85% of all retail transactions, representing 60% of the total monetary value, are now conducted using cash. However, electronic payments at brick-and-mortar stores are likely to become more prevalent over time, and Apple would like to be at the forefront of that trend.

How will the potential disruption impact business and affect investors? Should the executives at ATM manufacturers such as Diebold (NYSE: DBD  )  be worried? Credit and debit card processors like MasterCard (NYSE: MA  ) and Visa (NYSE: V  )  are already benefiting from the trend to a cashless society. Could things get even better?

Patently obvious
The obsolescence of paper money might someday be officially traced to U.S. patent No. 20140019367. That was filed by Apple in 2012 and published earlier this year. 

Source: USPTO

The way it might work is that an iPhone or some other portable device would initiate the link to a point-of-sale machine at the "cash register" using near field communication. Information would be transmitted using WiFi or Bluetooth. Shoppers would not have to reach into wallets and purses to extract cold, hard cash or swipe debit and credit cards. Apple would get a fee for its handling of each transaction.

MasterCard and Visa would still be part of the system by maintaining the needed databases and processing of the financial transactions between the retailer and banks.

That would be good news for their investors. Both companies have realized solid gains in revenue, EPS, and stock price over the last five years by taking advantage of the recovery from the 2008-2009 financial crisis and the movement away from cash in both emerging and developed markets. Visa CEO Charles Scharf projects solid growth resuming later this year, as economic conditions improve even more and the trend to e-payments continues. 

 MA Chart

MA data by YCharts

The next industry to crumble
In 2010, Apple released the iPad and it quickly affected the PC industry. While tablets have flourished, growth in PC shipments has suffered. Apple could cripple the ATM industry if its mobile payments system takes off in a similar fashion.

Companies like Diebold, which has reported flat revenue and drooping EPS recently, could throw in the towel on ATMs and focus more on other aspects of its business -- or get into an entirely different line of work. Investors might want to look instead at Apple, MasterCard, and Visa.

Foolish conclusion
An Apple mobile payments system could disrupt another industry, just like the iPad radically altered the PC business and enriched shareholders of the iconic tech giant. Companies like Visa and MasterCard should continue to benefit positively from the ongoing trend to a cashless society. Others, such as Diebold, could suffer. Investors should keep an eye out to what comes out of Cupertino. Tim Cook could be pulling a rabbit out of his hat.

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  • Report this Comment On May 16, 2014, at 11:47 AM, crca99 wrote:

    I have lived thru natural disaster when people want something of value in their hand to barter with and nothing from an electronic cloud. Will we go to holding gold coins in back of closet just in case?

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