Apple (AAPL +1.05%) is laying the groundwork to disrupt yet another industry. The Wall Street Journal reported the Cupertino company is making progress toward a mobile payment solution that would leverage its 575 million-plus credit cards on file through the iTunes store. To put that number in perspective, that's more than four times the number of active users on eBay's (EBAY +0.32%) PayPal.
Meanwhile, Google's (GOOG +2.81%) efforts to break into mobile payments with Android, NFC, and its Google Wallet platform have floundered for years now. Can Apple succeed where Google has failed?
Apple Store in Shanghai. Source: Apple
Recent development in the iPay saga
According to The Wall Street Journal, Apple recently promoted Jennifer Bailey, the woman in charge of Apple's online store, to a new role to build a payments business. Meanwhile, Eddy Cue, who heads up iTunes and the App Store, has been talking with industry executives regarding Apple's interest in payment processing.
More importantly, however, Apple is continuing to file patents for a payments platform. The most recent is a "method to send payment data through various air interfaces without compromising user data." The patent describes a hybrid approach to securing payment information using NFC and WiFi or Bluetooth.
With the recent credit card data breach at Target stores, security is at the top of people's minds when it comes to credit card data. Apple's hybrid approach ensures security, but compromises on convenience. It's a slight improvement over complete reliance on NFC, but still requires an initial NFC connection.
The iBeacon advantage
As mentioned, Google has relied on NFC adoption to proliferate its mobile payments solution. Unfortunately, for the company, it hasn't caught on as rapidly as it expected. Although NFC is secure, since it doesn't require access to the apps processor, it is somewhat cumbersome as users must maintain the connection throughout the entire process. At the very best, it's no easier than using a credit card.
Late last year, Apple began rolling out its iBeacon device and capabilities. The platform runs on Bluetooth Low Energy, or BLE, and these iBeacons are capable of sending and receiving information to and from iDevices. As more retailers adopt iDevices, the iBeacon capabilities can be used to direct customers around the store and offer special promotions while gathering data on shopper behavior.
Perhaps its biggest potential, however, is to facilitate mobile payments. PayPal introduced its own Beacon device in September last year, a couple months before Apple rolled out the iBeacon. PayPal's device just requires users to have the PayPal app installed on their device and verbal confirmation upon checkout.
PayPal has successfully grown as a mobile payments platform, processing $27 billion in payments through mobile devices last year. The vast, vast majority of those payments, however, are for online transactions, not in-store. The Beacon may help, but Apple may squash it before it really gets off the ground.
Added incentives
In Apple's latest patent, the company repeatedly references "additional data" as part of the payment transaction. Additional data include things like coupons, special offers, receipts, store credits, and location information. In other words, Apple wants to do more than process payments; it wants to facilitate commerce.
Remember, Apple isn't just competing with Google and PayPal, it's working against the grain of the credit card ecosystem. Credit card companies are excellent at incentivizing customers with cash back and airline miles. Apple may plan on following their lead by offering coupons or store credits in conjunction with retailers. On the other side, Apple is providing retailers with additional information about their shoppers through the iBeacon. This is something neither Google nor eBay are offering.
This ought to improve not only the adoption of the potential payments platform, but the adoption of iDevices in retail locations. A successful platform should translate into increased consumer adoption as well.
The time is ripe
Apple is well-known for not releasing products before everything is ready -- that includes the market. Last year, Forrester Research predicted that mobile payments in the U.S. will grow from a $12.8 billion market in 2012 to a $90 billion market by 2017 -- a 48% annual growth rate. As a dominant player has yet to emerge, Apple's opportunity is high before a competitor establishes a critical mass of users.
