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The Biggest Reason Apple Would Succeed With a Payments Platform, and Why It Needs to Act Fast

Apple (NASDAQ: AAPL  ) likely has more than 800 million credit cards on file. On the company's most recent earnings call, Tim Cook mentioned the company was close to this.

To put that number in perspective, it's more than three times the number of active users at e-commerce giant (NASDAQ: AMZN  ) . Indeed, Apple's app store sees more visitors every week than any e-tailer sees in a month.

So, Apple certainly has everything it needs to launch a payments platform, and there's one big reason why it would succeed. But it must act fast.

Apple dominates mobile shopping
The overwhelming majority of people using tablets and smartphones to make online purchases are Apple users. Increasingly, however, more Google (NASDAQ: GOOG  ) Android users are using their tablets and smartphones for shopping.

Source: Business Insider / Monetate 

According to recent data from Monetate, Apple is slowly losing share of online shopping. The iPad now accounts for a "mere" 86% of tablet shoppers, and the iPhone accounts for 58% of smartphone shoppers.

Granted a lot of that shopping is done on sites like Amazon that have their own checkout and payments system. Hundreds of other small e-tailers, however, could greatly benefit from a simple mobile payments system. Apple is uniquely positioned to offer that service.

Apple can provide a simple, seamless payments system for mobile shoppers with no additional sign-up required. Just scan your fingerprint using its Touch ID, and the items are paid for using your iTunes account.

What about Google?
It's quite clear that more Android users are shopping online as well. Google already has a payments platform, Google Wallet, and it has millions of credit cards on file through its Google Play store.

Google has a huge opportunity, but it's been unable to take advantage of it. Even if Google was successful at integrating Wallet with more mobile e-stores, its solution would not be as smooth as Apple's.

Android suffers from a fragmentation problem. There are several active versions of Android running on hundreds of different phones. That makes for extra hurdles for Google to overcome in order to implement simple checkout. Those hurdles will likely include users establishing a new account.

Amazon may be a bigger threat
Last week, Amazon updated its "Login and Pay" service to include subscriptions. The week before, it invited people to an event on June 18 that is expected to be the unveiling of its long-rumored smartphone.

An Amazon-branded smartphone that integrates Amazon's payments platform could be a serious threat to Apple's would-be payments solution. Amazon has its work cut out for it, considering the number of active iPhone users, but it certainly has the pull to attract smartphone shoppers. If Amazon's phone is built with shopping in mind -- and why wouldn't it be? -- it could attract more online retailers to its payments platform.

The one thing working against Amazon is that it competes with every other retailer -- the companies that would use it payments platform.

Not just e-commerce
Apple also has the potential to expand a payments platform beyond e-commerce with its iBeacon technology and the widespread use of iDevices in stores. Brick-and-mortar solutions are much more difficult, especially considering the ease of credit cards. Nonetheless, it's a big possibility.

But if Apple's going to succeed with a payments platform, it's going to be in online mobile commerce first. Considering the majority of smartphone and tablet users that shop are already using Apple devices, Apple stands a good chance of succeeding. The competition is catching up, however, so it needs to act quickly.

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  • Report this Comment On June 16, 2014, at 12:24 PM, Dro1992 wrote:

    There is one caveat to your article and that is adoption. Lets say that in theory, Apple did implement a payment method right. You demonstrated data showing what portion of mobile shopping was done on iPhone's and iPads. Do you have data that shows on average where the shopping was done? If I had to bet money on it I would wager Amazon and Ebay. Ebay clearly would NEVER adopt an apple payment method considering that they own PayPal and Amazon will probably role out their own method and even if they didn't they already rely on Paypal. This is the very reason that Google wallet has had a troublesome adoption. That is not even factoring in MOBILE carries themselves actually trying to set up their own payment systems; AT&T is an example of one.

  • Report this Comment On June 16, 2014, at 3:39 PM, twolf2919 wrote:

    Every week, somebody advises that Apple will or should provide a payment platform - and the reason given for why Apple would be a natural fit is always the 800 million credit cards it has on file.

    And whenever someone writes such a piece, I pose the question: how, exactly, do 800 million credit cards help Apple? How, exactly, will it make any MONEY by providing such a platform?

    What, do you think Visa, Mastercard, etc. will suddenly share their transaction fee with Apple - just because its customers used an iPhone rather than their plastic card? Or do you honestly think lots of customers will happily fork over a "convenience fee" to Apple? Neither seems very likely.

    You say that small etailers would gladly sign up with Apple. What do you base this opinion on? Even little etailers already have a checkout that accepts Mastercard, Visa, etc. - otherwise they wouldn't be etailers - what incentives would they have to sign up with Apple??

    In my opinion, the only way Apple can make money in the payment platform business is the same way PayPal does: by convincing its customers to let them have access to their bank accounts. With these customers, PayPal pays the merchant directly - charging him a fee (less than Visa, Mastercard, etc., to give him incentive to take "PayPal" as a form of payment). But in this case, 800 million credit cards don't help Apple one bit!

    Please explain why you think otherwise.

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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