2 Ways Apple Inc. Can Play Mobile Payments -- and Win

Investors are already widely expecting Apple to jump into the mobile payments game. There are two main ways that the Mac maker can do just that, and it's already doing one of them.

Jun 7, 2014 at 12:00PM

Touch Id Sensor

Touch ID sensor. Source: Apple.

This week, Apple (NASDAQ:AAPL) took the bold and somewhat expected step of opening up its Touch ID feature to third-party developers. Opening up Touch ID has been a long time coming, as when it first made its debut, its usage was limited to iTunes purchases and device unlocking -- barely scratching the surface of its true potential.

The most obvious implication of adding third-party support is giving Apple inroads to the burgeoning field of mobile payments. Mobile payments have certainly been on Tim Cook's mind lately. Here he is as recently as January:

The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID. But we're not limiting ourselves just to that. So I don't have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it's a big opportunity on the platform.

This is just the beginning. Here are two different ways Apple can play mobile payments.

1. Facilitate third-party payment vendors
Apple's 30% cut on apps and books under the agency model is common knowledge. However, that only applies on the sales of content, including in-app purchases. For apps that are just extensions of other services, such as payments, there is no cut.

Consider Square, the popular mobile payments service that is being adopted by small- and medium-sized merchants en masse. Square charges 2.75% per swiped transaction, and Apple gets none of it. eBay's (NASDAQ:EBAY) PayPal similarly charges a comparable 2.7% for its competing PayPal Here service. Again, Apple's cut is zilch.

By allowing third-party entities to use Touch ID, all while keeping the actual fingerprint data encrypted locally, Apple can facilitate these types of services and the net result is an incredibly simple experience for users to pay for things. PayPal, specifically, has been looking forward to this day for over a year and has been anticipating Apple's killing the password.

Paypal Here

PayPal Here. Source: PayPal.

PayPal is a member of the Fast IDentity Online, or FIDO, alliance, which has set out to transition authentication away from alphanumeric passwords in favor of something more secure. Google joined the FIDO alliance last April and Microsoft got onboard just six months ago. In fact, PayPal became the first company to enable fingerprint authentication for payments with Samsung's Galaxy S5 earlier this year. With that in mind, it should be obvious that PayPal will embrace Touch ID once iOS 8 launches this fall.

PayPal continues to adopt new technologies for payment authentication, and mobile results are soaring as a result. In the first quarter, PayPal's mobile commerce volume jumped 70% to $11 billion, and the company added 6.5 million new customers from mobile alone.

Even if Apple isn't getting a piece of the action, the goal for the Mac maker is to further strengthen iOS and expand the platform's overall capabilities. Third-party payment vendors like PayPal are going to love Touch ID.

2. Launch a first-party payment service
Apple now has nearly 800 million iTunes accounts, most of which have credit cards on file. Amazon.com, the largest e-commerce company on the planet, has "just" 237 million active customers with credit cards on file. Apple has over three times as many registered users, which is a clear opportunity for a first-party payment service.

Touch Id Buy

Using Touch ID for iTunes purchases. Source: Apple.

Over the years, iTunes has continued to swell to encompass a very broad range of products and services beyond music. iTunes is no longer a comprehensive moniker, but the main reason Apple hasn't changed it is because it has become such a powerful brand. For that reason, Apple could launch something along the lines of "iTunes Pay" and tap into your iTunes account for payments. Add in iBeacon's retail potential, and all of a sudden you have a massive payments platform with real-world applications.

Apple would have to reduce its fees for these types of transactions closer to the industry norm of around 3%, but again the goal here isn't about turning mobile payments into a direct profit center. It's about giving consumers more and more reasons to buy iPhones.

Having cake and eating it too
The real beauty of these strategies is that they're not mutually exclusive. Apple can do both to maximize its chances of success. Touch ID is about to proliferate throughout the lineup, dramatically expanding its usage. Apple is already doing one of these strategies, but will it do both?

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Evan Niu, CFA, owns shares of and has options on Apple. The Motley Fool recommends Amazon.com, Apple, eBay, Google (A and C shares) and owns shares of Amazon.com, Apple, eBay, Google (A and C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers