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Apple could offer loyalty rewards for mobile payments

Aaron Pressman
Tech experts say Apple Pay safer than carrying a wallet

As reporters, analysts and various VIPs mingled outside Apple’s (AAPL) iPhone unveiling last week, there was much talk about a new service Apple didn’t end up announcing. While Tim Cook and company offered their vision for the future of mobile payments, Apple Pay, there was no reference to an accompanying loyalty rewards plan some Apple observers had heard the company was developing.

Apple isn’t talking – the company didn’t respond to emails this week seeking comment on a possible reward program. But the chatter about an Apple rewards program is still growing.

A current job posting at Apple seeks a product manager responsible for “shaping the future of loyalty programs.” The person hired for the position will also “recommend and develop initiatives to sustain and evolve our loyalty programs, while maintaining fiscal responsibility,” according to a report in Bank Innovation.

All the major credit card companies offer loyalty rewards programs, ranging from American Express’s (AXP) partnerships with Delta Airlines (DAL) and Costco (COST) to JP Morgan Chase’s (JPM) Amazon (AMZN) Visa card. The programs help card issuers retain customers and convince them to funnel more spending to their card accounts.

A boost to Apple Pay?

Such a program, if it included desirable rewards, could help Apple’s mobile payments offering succeed after all prior efforts have floundered.

A second quarter survey about attitudes towards mobile payments by Nielsen found 69% of consumers would use mobile payments methods if retailers offered discounts specific to their purchases. A similar majority would convert if they could use a mobile wallet to redeem rewards points immediately.

“It’s a technique worth trying,” says Jennifer Kent, a senior analyst at market researcher Parks Associates. “Mobile payments have had a difficult time getting traction with consumers.”

A possible Apple rewards program could offer discounts with participating retailers or points to make free purchases from Apple’s popular iTunes stores. Apple said it isn't collecting transactional data from Apple Pay, so rewards might work through partnerships with retailers or credit card issuers. Apple has 800 million iTunes customer accounts with a credit card on file, the company said in April.

The new Apple Pay program, which will roll out in October, lets a consumer with an iPhone 6, 6 Plus or the forthcoming Apple Watch tap their device on a specially equipped check out terminal to instantly charge a purchase to their credit card account. Apple said major retailers including Macy’s, Staples (SPLS) and McDonald’s (MCD) would accept Apple Pay, though some chains, including Walmart (WMT) and Best Buy (BBY), pointedly rejected participating.

Apple CEO Tim Cook made no mention of possible loyalty rewards when he explained why consumers should use the new payments Apple system. Apple showed a less-than-convincing video about the annoyances of paying with a credit card. Cook also emphasized security – the “outdated and vulnerable magnetic stripe.” It’s just that weakness that has allowed hackers to steal millions of credit card numbers from retailers including Target (TGT) and Home Depot (HD) to create bogus, credit card clones.

The potential market for mobile payments is enormous. U.S. consumers spend $4 trillion a year via credit and debit cards. But prior mobile payment efforts have made little progress. Even market leader PayPal, a unit of eBay (EBAY), reported just $27 billion last year in mobile payments. Paypal took a preemptive shot at Apple Pay in newspaper ads this week, pointing to the theft of hundreds of celebrity photos from Apple's iCloud servers.

Still, the chance for a for a few free songs and movies could motivate a lot more people to go mobile with Apple Pay.

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