Mobile payments, or the notion that you can pay for goods and services at the checkout with your smartphone, may finally break into the mainstream if Apple and the iPhone 6 get involved.
While Apple doesn't talk about future products, Wired was the latest to report that the next iPhone would include mobile-payment capabilities powered by a short-distance wireless technology called near-field communication, or NFC. Apple is hosting an event on Sept. 9 that's widely expected to be the debut of the next iPhone or iPhones.
Apple's embrace of mobile payments would represent a watershed moment for how people pay at drugstores, supermarkets, or for cabs. The technology and capability to pay with a tap of your mobile device has been around for years -- you can tap an NFC-enabled Samsung Galaxy S5 or NFC-enabled credit card at point-of-sale terminals found at many Walgreen drugstores -- but awareness and usage remain low. Apple's visibility and massive user base - it already holds credit card data for about 800 million iTunes account holders -- could change that.
"Apple has again the opportunity to transform, disrupt and reshape an entire business sector," said Roger Entner, a consultant at Recon Analytics. "It is hard to overestimate what impact Apple could have if it really wants to play in the payments market."
An Apple spokeswoman declined to comment.
Apple won't be the first to enter the mobile-payments arena. Google introduced its Google Wallet service in May 2011. The wireless carriers formed their joint venture with the intent to create a platform for mobile payments. More traditional financial companies such as Visa and PayPal have also tinkered with marrying payments to the smartphone.
Apple tends to stay away from new technologies until it has had a chance to smooth out the kinks. It was two years behind some smartphones in offering an iPhone that could tap into the faster LTE wireless network. NFC was rumored to be included in at least the last two iPhones, and could finally make its appearance in the iPhone 6. The technology will be the linchpin to enabling transactions at the checkout.
Early struggles
The notion of turning smartphones into true digital wallets -- including the ability to pay at the register -- has been hyped up for years. But so far, it's been more promise than results.
There have been many technical hurdles to making mobile devices an alternative to cash, checks, and credit cards. NFC technology has to be included in both the smartphone and the point-of-sale terminal to work, and it's been a slow process getting NFC chips into more equipment. NFC has largely been relegated to a feature found on higher-end smartphones such as the Galaxy S5 or the Nexus 5.
There's also confusion on both sides -- the merchant and the customer -- on how the tech works, and why tapping your smartphone on a checkout machine is any faster, better or easier than swiping a card.
"There's a chicken-and-egg problem between lack of user adoption and lack of retailer adoption," said Jan Dawson, an analyst at Jackdaw Research.
It's one reason why even powerhouses such as Google have struggled. Despite a splashy launch of its digital wallet and payment service more than three years ago, Google hasn't won mainstream acceptance -- or even awareness -- for its mobile wallet. Google hasn't said how many people are using Google Wallet, but a look at its page on the Google Play store lists more than 47,000 reviews giving it an average of a four-star rating. Google declined to comment on usage.
Meanwhile, three of the big four US wireless carriers -- Verizon Wireless, AT&T, and T-Mobile -- formed a joint venture to offer a similar kind of NFC-powered mobile-payment service. After a year-long trial period, the service, named Isis, launched across the nation in November with help from high-profile partners such as co*ke and Jamba Juice, which offered freebies for early adopters. In July, Isis had to go dark to change its name, which too closely resembled the terrorist group Islamic State of Iraq and Syria, also known as ISIS. It has yet to emerge with a new name.
While online payment service PayPal can handle NFC-powered transactions, it also added other capabilities, such as ordering and paying on the phone ahead of picking up a product.
Pieces of the puzzle
Apple has quietly built the foundation to its mobile-payment service in Passbook, an app introduced two years ago in its iOS software and released as a feature with the iPhone 4S. Passbook has so far served as a repository for airline tickets, membership cards, and credit card statements. While it started out with just a handful of compatible apps, Passbook works with apps from Delta, Starbucks, Fandango, The Home Depot, and more. But it could potentially be more powerful.
"Apple's already made great inroads with Passbook," said Maribel Lopez, an analyst at Lopez Research. "It could totally crack open the mobile payments space in the US."
Apple could make up a fifth of the share of the mobile-payment transactions in a short few months after the launch, according to Lopez, who based her math on the assumption that half of iPhone users try the feature and the company's 35 percent market share among US smartphones.
The company also has the credit or debit card information for virtually all of its customers thanks to its iTunes service, so it doesn't have to go the extra step of asking people to sign up for a new service. That takes away one of the biggest hurdles to adoption.
The last piece of the mobile-payments puzzle with the iPhone is the fingerprint recognition sensor Apple added into last year's iPhone 5S. That sensor will almost certainly make its way to the upcoming iPhone 6. The fingerprint sensor, which Apple obtained through its acquisition of Authentec in 2012, could serve as a quick and secure way of verifying purchases, not just through online purchases, but large transactions made at big-box retailers such as Best Buy. Today, you can use the fingerprint sensor to quickly buy content from Apple's iTunes, App and iBooks stores.
The bigger win for Apple is the services and features it could add on to a simple transaction -- if it's successful in raising the awareness of a form of payment that has been quietly lingering for years. Google had previously seen mobile payments as the optimal location for targeted advertisem*nts and offers.
It's those services and features that ultimately matter; in the end, replacing a simple credit card swipe isn't that big of a deal.
