Could Apple (AAPL) enter the mobile payments arena occupied by PayPal and Google Wallet
That's the buzz since word of an acquisition by the iPhone maker surfaced on Friday and since the company last month unveiled Passbook, an app that organizes store cards, gift cards, coupons, boarding passes and event tickets on smartphones. Passport works on Apple's next-generation iOS 6 operating system expected out this fall.
Analysts say rivals like Google (GOOG), Microsoft (MSFT), eBay's (EBAY) PayPal, as well as MasterCard (MA) and Visa (NYSE:V), would feel the heat if Apple pushes into mobile payments. This increasingly crowded field also includes financial software maker Intuit (INTU) as well as aggressive new players such as Square.
"At some point, Apple will link its new Passport product to its 400 million-plus active iTunes accounts that are linked to credit cards," said Philip Philliou, managing partner of Philliou Partners, a New York City-based payments consulting firm. "When that occurs, Apple will instantly become a major force in global consumer financial services.
This would be the case, though, only assuming Apple takes the big leap to get into the payments field, which is fairly far afield from anything it's done yet.
Gets Fingerprint Technology But Apple has inked a pact to acquire fingerprint security and sensor maker AuthenTec, according to a Securities and Exchange Commission filing on Thursday by AuthenTec. That company said in the filing that Apple wants AuthenTec to develop a fingerprint sensor suitable for use in an Apple product.
Apple has said nothing about the deal, but RBC Capital Markets analyst Amit Daryanani, ISI analyst Brian Marshall and others were quick to note that AuthenTec's fingerprint security could allow for a secure mobile e-payment service offering from Apple.
Passbook already had analysts thinking that way. It was among its products announced at its Worldwide Developers Conference in June. Apple touts Passbook as a way to make shopping, traveling and attending entertainment events more efficient.
Passbook users load electronic versions of store cards, coupons and plane tickets onto their smartphones. The cards then appear in one app, organized as if they were tucked into the flaps of a wallet. Users can then call up each item as needed.
Passbook is location-sensitive. For example, the application automatically brings up a Starbucks (SBUX) prepaid card as you approach a Starbucks outlet, for Starbucks customers that have loaded the card onto their smartphone.
Users also could, for example, get updates on airline boarding pass information, such as when a gate changes.
Wouldn't Be Big Stretch Though Passbook can't handle payments transactions, some observers say adding such functionality is no stretch.
Apple has the cash, credibility and leverage to turn Passbook into a formidable payments system, some analysts say. It has 400 million credit cards on file in its iTunes store from users who buy digital music, movies and books. Apple could tap these millions of smartphone users to pay for physical goods in stores via Passbook.
This would be a big step for the electronics company. But Philliou says once Apple has access to those millions of credit card holders through iTunes, it indeed can compete head-to-head with PayPal.
With the right amount of money and elbow grease, he says, Apple could compete with card networks like Visa, MasterCard, American Express (AXP) and ChinaUnion Pay. He says Apple could also vie with card issuers like CapitalOne.
An Apple push into payments wouldn't help Google Wallet, a mobile payment system that lets users store credit cards, loyalty cards, gift cards and sales promotions on their Android phones.
The payment system has encountered security issues and technical glitches on some Android devices. And Google Wallet so far has limited support from telecom carriers and credit card companies. Sprint Nextel (NYSE:S) is its only wireless carrier at this point.
Yet it's a big question whether Apple has any intent to enter the complex mobile payments field.
"It would be be very difficult for Apple," said Oren Levy, CEO of mobile payment platform provider ZooZ.
"There's a very big difference between selling virtual goods where you can control the content and quality of the goods being sold, and actually paying for physical goods. The mechanism for paying for physical goods is different," he said.
ZooZ offers a mobile payment checkout platform that mobile developers integrate in their apps.
Still, Levy won't rule out the possibility that Apple would jump into payments. "There might be a trial," Levy said.
Partnership Said More Likely He says Apple likely would do this with a partner — like Google did with MasterCard.
MasterCard, along with Citigroup (NYSE:C) and Sprint, were Google's main partners in Google Wallet, rolled out last year.
Who would Apple partner with? "Maybe a very large bank. There are plenty of players to choose from," Levy said.
Levy sees Apple as a "facilitator," providing a platform for such a venture through its iOS. "Apple will not actually get involved in processing payments for merchants," he said.
He questions whether payments make sense for Apple. "The processing fees would only be a couple percent," Levy said.
S&P Capital IQ analyst Scott Kessler also doubts Apple would enter the payments field. He says Apple's past successes have been tied to services closely connected to its hardware devices.
"There are a lot of people on Apple's payment system via iTunes. But to take that outside of Apple with third-party merchants is a stretch," said Kessler.
He questions whether Apple can differentiate itself vs. PayPal in payments.
That's not stopping others from entering the fray. Microsoft last month said it would feature a digital wallet in its new Windows Phone 8 smartphones out this fall. Details are fuzzy, but it seems the Redmond, Wash., software giant wants a piece of the mobile payments pie.
PayPal and others have reason to fear Passbook, says Philliou. He says Apple will wait to gauge Passbook's popularity.
If Passbook and iOS 6 are hits, he says Apple — at some point — would convert Passbook into a full-blown mobile payments system. Though he also said, "it appears that Apple is taking a cautious approach to entering the market, perhaps learning from mistakes made by others."