Several top technology sites are reporting a new feature on Apple's (NASDAQ:AAPL) upcoming iPhone 6 that, if it is included, would give Apple a presence in a fast-growing industry and, because of the company's network size, could cause headaches for competitors, especially Facebook (NASDAQ:FB).
What's this new feature?
Back in January, The Wall Street Journal reported that Apple was working on a mobile payments system that would enable users to buy goods and services, probably through applications. This report came after Apple filed for mobile payment patents and was granted one patent for an e-wallet. These rumors and actions fueled speculation that Apple was working on a payment processing product of sorts, which then seemed to become more of a reality earlier this year when Re/Code reported in April that Apple was interviewing payment industry veterans to lead the initiative.
Fast-forward to just a few days before the iPhone 6 is unveiled, and various publications are citing sources within the company saying that the device will feature a payments platforms. Wired says sources tell it the new platform a hallmark feature of the iPhone 6. Furthermore, Re/Code says it has been hearing the same chatter in regard to the coming payments platform.
This isn't good news for everyone
While Apple's payment processing platform may be convenient for consumers, it would be especially bad news for Facebook, a company that's made some big moves and taken some rather significant risks in recent months to solidify its position as a future leader in mobile payments.
Facebook CEO Mark Zuckerberg said during the company's most recent quarterly conference call that payments will become a large piece of the mobile platform, referring to Messenger. BlackBerry CEO John Chen recently called mobile payments "the next big thing" through messaging. Addressing that likelihood, Facebook hired former PayPal chief David Marcus to head its Messenger business and also paid nearly $19 billion to acquire WhatsApp, gaining it an even larger presence in mobile messaging and expanding its worldwide presence.
Also, Facebook recently required its users to download and use Messenger for conversations, a move that leads straight to payment processing via messaging when you connect the dots. Finally, the company is testing a "Buy" button, which is about the clearest sign that it wants to give its a million-plus advertisers the ability to sell products and services, thus increasing the value of Facebook advertising, and perhaps attracting more of its 30 million-plus local business pages to advertise as well.
The value for Facebook payments lies in the ability to make advertisements more meaningful for advertisers, and also to create a new revenue stream that will probably be based on transactions, like PayPal. But the difference between PayPal and Facebook is more than a billion users, as PayPal finished its second quarter with 152 million users, while Facebook is at 1.3 billion. Therefore, Facebook has a good opportunity to steal business from eBay. However, the problem for Facebook could be that Apple also has an enormous platform, with more than 800 million accounts with stored credit card information on iTunes. And much like businesses have Facebook pages, many of which advertise, those same businesses probably have applications that are downloadable on iTunes.
Furthermore, once Facebook launches its payment processing service, it's likely that mobile will be its area of emphasis. Specifically, Facebook had more than a billion monthly active users on mobile during its last quarter, 81% of its total, and 62% of its advertising sales came from mobile. Therefore, its product will probably be tailor-made for mobile, via messaging, but the problem is that Apple's platform will also come via mobile, through the iPhone and iPad. As a result, Facebook has some stiff competition in its way, and the biggest problem is that while Apple could present its product in a few days, Facebook's service is still considered to be in the development stage, with no actual product to date.
Research and analysis firm BI Intelligence estimates that mobile payments for in-store and Internet purchases will grow by nearly $300 billion over the next four years. Hence, the market is more than big enough for several large players, but as with most industries, there is sure to be a leader.
While Facebook and Apple are two of the great innovators of the 21st century, playing on a level field, Apple appears to have the advantage in this space, and considering what Facebook has risked and paid, it's clear that an iPhone 6 payment processing service would become a big headache for Facebook and Mark Zuckerberg if it is indeed a flagship product.
Brian Nichols owns shares of Apple. The Motley Fool recommends Apple, eBay, and Facebook. The Motley Fool owns shares of Apple, eBay, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.