It was recently reported that Apple (AAPL 1.27%) and American Express have agreed to work together to develop a new payments system for the iPhone. This comes on the heels of other reports indicating that Visa and MasterCard have agreed to similar arrangements. The more recent report also speculates that Apple will announce its new mobile wallet at its upcoming September 9 event.
flickr/ Darwin Figueroa
While the particular details of the new system are anyone's guess at this point, Apple could indeed become a powerhouse in the payments business if things go well. And the credit card companies fortunate enough to be involved could see a nice boost to revenue as well.
Apple's payment system could be huge, but will it get there?
Between the iTunes and App Store platforms, Apple has about 800 million credit card numbers already on file. It would seem like a natural next step to figure out a way to pay for non-Apple products using the company's software.
It will likely use the iPhone's fingerprint scanner in some capacity, and in order to be able to accept the mobile payments, retailers are likely going to need to upgrade point-of-sale terminals to be compatible with the NFC (near field communication) chip reportedly built into the new iPhone.
It'll be interesting to see if Apple has agreements with any retailers, which could be revealed during the product launch event, and Apple could possibly incentivize retailers to use its payment system by undercutting the fees merchants pay to traditional credit card processors. One of the keys to success here is consumers being able to make payments at a wide variety of retail businesses, so its very important Apple gets this part right.
However, it looks like things are already heading in the right direction. Apple's own retail stores already use terminals equipped with NFC technology, and Visa and MasterCard have already set a deadline of October 2015 for a switch from magnetic stripe credit card technology to cards with integrated chips, like are currently used in most of Europe. And once the chip technology is up and running, integrating NFC technology would be a relatively easy upgrade.
Who are the winners and losers here?
Aside from Apple itself, which stands to make a ton of money if it can successful monetize its mobile payments system, the credit card processors could see a substantial increase in charges (and fee income) on both credit and debit cards for transactions that otherwise would be paid in either cash or by another means.
One company that should be very worried by Apple's development of a mobile wallet is eBay's PayPal, which can be linked to a credit card but is also generally linked to a user's bank account. As of now, PayPal is seen as the leader in secure payment technology, and if Apple's payment system allows for peer-to-peer payments in the same way PayPal does, it could be very bad news for the company.
Will Apple succeed where others have failed?
The concept of a mobile wallet isn't that new. Google and a bunch of mobile carriers have offered their own mobile wallets for some time now, but none have really caught on too well.
Apple's unique opportunity is to be able to seamlessly integrate the credit card data already on file into a software platform that its users are already accustomed to using.
If the system is convenient, user-friendly, and secure, it could certainly catch on. And, if retailers embrace NFC technology and the system allows for peer-to-peer as well as point-of-sale payments, this could indeed be revolutionary.
However, at this point there are a lot of unanswered questions, which we'll hopefully receive some clarification on during next week's Apple event.
In my opinion, investing a great deal of resources into building a mobile payment system before the necessary infrastructure is in place is very much a gamble. But then again, so was making the iPad.
