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Is Google Inc's Feud With Isis Apple Inc's Opportunity

By Adam Levy – Mar 24, 2014 at 6:00PM

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With retailers removing NFC terminals, Apple could get into mobile payments

A big reason Google's (GOOGL -0.15%) Wallet application failed to take off is because of a joint venture between Verizon (VZ 0.78%), AT&T (T 0.81%), and T-Mobile (TMUS 0.17%) called Isis. Isis was able to block access to the NFC chip on Android phones sold under those three carriers, rendering Google Wallet useless. As a result of the standoff between Google, the software maker, and Isis, which was able to control the hardware, mobile payments have yet to take off in North America.

Now, both Best Buy and 7-Eleven are reportedly shutting down NFC capabilities at their stores. An analyst at Gartner suspects this move was spurned by a lack of NFC payments at checkout.

Is this an opportunity for Apple (AAPL 0.83%) to get into the mobile payments market?

All signs point to iWallet
Despite Google's and Isis's struggles to get the ball rolling on mobile payments, there's still plenty of force behind the idea of paying for goods with your smartphone.

When asked about mobile payments on the first quarter conference call, CEO Tim Cook told analysts "the mobile payments area in general is one that we've been intrigued with." He added that "it's a big opportunity on the platform." Forrester Research estimates the size of the opportunity will grow to $90 billion by 2017, growing at a 48% rate since 2012.

Apple has all but telegraphed its intent. First, it released Passbook, a digital wallet of sorts. Then it added Touch ID to the iPhone, which allows for biometric authentication. Additionally, it turned on iBeacon capabilities for the iPhone and iPad last fall. Most importantly, however, it continues to file patents regarding mobile payments.

A recent patent, a "method to send payment data through various air interfaces without compromising user data," indicates that Apple is open to the idea of using NFC, but is not completely reliant on the standard.

Could Isis block out Apple?
Isis was able to block out Google by disabling access to the NFC chip. Apple, however, controls both the software and hardware in the iPhone, which will make it much more difficult for the phone companies to block such a service. Additionally, the phone companies probably don't want to do anything to get on Apple's bad side considering the iPhone is particularly valuable to carriers.

It would be very surprising if Isis is able to block Apple's payments platform. The bigger threat could be from retailers.

Both Best Buy and 7-Eleven are part of a consortium called the Merchant Customer Exchange, or MCX, which is launching a competing payments platform that relies on barcode scanners. Starbucks has had great success with barcode scanners, with 14% of payments coming from mobile. The value to retailers is that these payments are linked directly to loyalty rewards programs, and they receive loads of customer data from each transaction.

Interestingly, Apple has expressed that it wants to help retailers gain additional data. Its iBeacons allow retailers to track how customers move around its stores. Additionally, in the previously mentioned patent, Apple mentions "additional data" as part of the payment transaction. Additional data includes things like coupons, special offers, receipts, store credits, and location information. Basically, Apple looks like it wants to help retailers integrate their own loyalty rewards into its digital wallet.

Moreover, stores are already using Apple's products in its stores. iPads account for about 40% of mobile POS systems. The mobile POS trend continues to gain traction, particularly in North America where sales are expected to grow 108% this year.

Apple is in a unique position to allow customers to check out from anywhere in a store -- any store.

Millions of credit cards
Apple has over 575 million credit cards on file. It has the infrastructure in place with the iPhone utilizing Touch ID and thousands of stores using iPads as POS systems. The wireless carriers won't be able to stop it, but the retailers could.

Retailers are shutting out Google and Isis, getting rid of NFC terminals. The only thing standing in the way of Apple's success now, is retailers neglecting to adopt Apple's technology. Considering many have already chosen to work with Apple products in the past, it bodes well for the Cupertino company.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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.

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