September 3, 2014, 10:02 AM

Apple poised to supercharge mobile payments

With biometric and NFC technologies—not to mention the big three credit card companies—on board, Apple may provide the spark that (finally) lights a mobile payments fire, enabling consumers to pay in stores with their iPhones. And merchants may not need new POS terminals, one expert suggests.

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Like Apple Inc. or not, its innovations define the mobile realm. It is not a trendsetter, it is the trendsetter. And Apple seems poised to light a fire under the slumbering mobile payments market when the technology giant debuts the iPhone 6 smartphone on Sept. 9.

Apple, which has 800 million iTunes accounts linked to credit cards, a customer base unlike any other from which to drive mobile payments, reportedly has inked deals with Visa, MasterCard and American Express, and with other players in the payments arena, for its mobile wallet. And at long last, Apple is expected to include a Near Field Communication, or NFC, chip in its iPhone, the No. 1 selling smartphone in the U.S., according to technology research firm Gartner Inc. That would enable a shopper to pay by holding her phone near an NFC-compatible payment terminal.

A number of prominent national news organizations report the card company deals and NFC in the iPhone 6 based on reports from sources inside Apple, and a number of prominent technology bloggers with sources inside Apple or inside the Apple manufacturing supply chain, and who hold sterling reputations for predicting new Apple features and functions, report the same. Apple and the card companies did not respond to requests for comment.

NFC is a wireless networking technology that enables a mobile device with an NFC chip to communicate with a point-of-sale terminal with embedded NFC technology. No Internet required. Other NFC-based mobile wallets, like Isis, have not taken off because NFC is not available on many smartphones. And because NFC is not available on many smartphones, most merchants have yet to upgrade to terminals with NFC technology.

However, NFC capabilities generally are integrated into newer contactless EMV point-of-sale terminals that retailers are installing prior to the October 2015 industry deadline for moving paying cards and terminals to the EMV chip card standard, payments experts say. And NFC in the hands of millions of iPhone users could change the NFC equation for store merchants. What’s more, it may be that merchants don’t need new terminals if Apple has innovated how NFC is deployed.

A mobile wallet from Apple could make all the difference in the world to the mobile payments market, says Rick Oglesby, a long-time mobile payments and mobile wallets industry observer and senior analyst at Double Diamond Group, a payments consulting firm.

“With every new iPhone, Apple sells millions of units within just days of launch, and those users want to test drive all of the new features pretty fast,” Oglesby says. “If Apple is truly making a big bet on payments and has the major card companies involved, there is no other provider that can make a bigger difference. And as for NFC, merchants may not need much in the way of new hardware if Apple does this right. Apple has a long history of reinventing things, and when you are talking about computer-to-computer communication, like an iPhone to a POS system, a terminal really shouldn’t be necessary. NFC is likely a part of Apple’s solution, but it could well be a solution that does not use an NFC terminal.”

It’s hard to imagine Apple would launch a new product that can’t be used for months or years while merchants build out their infrastructure, Oglesby adds. “Looking at Apple’s patent portfolio, it’s likely they have found a way to complete software-based payments with minimal new infrastructure requirements,” he predicts. But he hesitates to guess what Apple might have up its sleeve when it comes to a new way to use NFC.

PayPal, Google, Facebook and even Amazon.com have all jumped into the mobile payments arena, though not all with NFC. Apple joining the NFC club, regardless of how it deploys the technology, eliminates what has been the largest barrier to success for NFC, says Thad Peterson, senior analyst at Aite Group, a payments consulting firm that specializes in mobile payments.

“Since Apple owns approximately 40% of the mobile device market, merchants have been justifiably reluctant to adopt a technology, NFC, omitted by the largest single player and the strongest brand,” Peterson says. “If Apple chooses to develop a platform that leverages the existing payments ecosystem, we can expect an explosion of interest and investment in mobile payments in the short term. However, there still needs to be strong value propositions in place for both merchants and consumers to use mobile payments. ‘Cool’ doesn’t cut it when you’re attempting to supersede a well-established payment instrument like the credit card.”

Mobile payments via the iPhone 6 potentially could be secured by the use of a consumer’s wholly unique fingerprint, as the iPhone 6, like its iPhone 5s predecessor, almost certainly will have Apple’s Touch ID biometrics fingerprint scanner. Such security could calm the fears of some consumers who steer clear of mobile payments because of security concerns, payments experts say.

On the in-store NFC front, Peterson adds that Apple itself recently added NFC capabilities to its point-of-sale terminals in its stores. And he says Apple has had a mobile wallet for some time.

“Apple already has a mobile wallet that has a card loaded, it’s called iTunes,” Peterson says. Not to mention Apple’s Passbook wallet app, which stores gift cards, loyalty cards and tickets. “The opportunity for Apple is to add the proximity payment capability, like you can through NFC, to the iTunes wallet to broaden the value of the iTunes platform. Whether or not it’s called a wallet isn’t important, it’s the ability to quickly authenticate the customer and authorize the transaction that matters. If Apple is going to create a mobile payments capability, I would expect them to leverage the 800 million iTunes accounts they already have on file.”

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