Recent breaches in debit card security at several retail stores highlight the need to beef up the protection of customer information. In Europe, most cards use imbedded microchips instead of relying on the infamous magnetic strip on the back to transfer data to point-of-sale machines. Will that catch on in the United States as well?
It might, though over the long term another innovation may be the best way to handle debit transactions. It also might benefit the world's No. 1 tech company and its investors, too.
The iPhone as a cash register
If the rumors that Apple (NASDAQ:AAPL) is in discussions with retail industry executives are true, at some point in the future your iPhone (or possibly a wearable device like the long-rumored "iWatch") could be used when you go to the store to make a purchase. Just point and click. The company has filed a patent for a secure two-part in-store communication system.
This could mean a return to higher growth for the company and big returns for Apple investors. The maker of the iPhone already has several hundred million credit cards on file in its iTunes and App store database. It could develop an app that interfaces wirelessly back and forth between the database and the store computer system. Apple would take a small cut of each transaction, and that could probably add several billion a year to its top line. The margins are bound to be very high for something like this.
A leg up
Although the industry is in its infancy, Apple probably has a leg up on its competition because it controls all the parts needed for a payment system --- hardware, secure transaction technology such as the fingerprint sensor used in the new iPhone, software (it gets to approve all apps), and stored financial information.
Amazon.com (NASDAQ:AMZN) might have a big advantage in retail experience, and probably has much of the needed software for accessing lots of customer credit and debit account information. It currently lacks the hardware and technology to do the whole job, however. The company would need to develop some type of payment device or acquire a company to do it, and this would probably require the company to divert funds away from its successful e-commerce and cloud computing businesses. Apple, with its huge cash pile and head start, doesn't have those worries.
Google (NASDAQ:GOOGL) has bits and pieces of the whole pie in place but lacks the penetration of Apple worldwide. It has Google Wallet, but it only works on certain smartphones purchased domestically and at merchants that use PayPass and PayWave .The Motorola division produces mobile devices, but it commands only a small portion of the market right now.
There are over 300 million iPhones in service currently, and most could be easily converted to a mobile payments device. Any new device would of course have the needed technology and apps already in place. Google has some catching up to do. The company might want to stay put and focus on its cash cow search business.
Consumers can currently pay for in-store purchases using their PayPal accounts too. PayPal is one of the two most important segments (the other is the online marketplace) of eBay (NASDAQ:EBAY) and currently handles over $180 billion in transactions annually. The company is planning on more growth from this business and additional revenue from the retail side, as it expands, would help. However, like Amazon, eBay doesn't offer a physical payment device yet and would probably lag behind Apple and Google in the business, at least initially, because of this.
A somewhat overlooked result of the recent theft of debit card information at several retail outlets is the opportunity to profit from a revamped mobile payments industry. One tech giant, Apple, appears to have all the pieces in place to benefit from the trend if it materializes. Some pretenders to the throne such as Amazon, Google, and eBay have some of the puzzle pieces, but are lacking in one or more areas and would have to spend some serious cash to overcome that.