apple & mobile payments

Apple is jumping on the bandwagon it seems.

http://www.afr.com/p/business/companies/apple_set_to_draw_battle_lines_on_evT5kfb7UBwS8Zd4mclTGJ


Every smartphone is a treasure trove of information about the person carrying it. Its apps feed off a constant stream of data, merging signals from the physical world with information about its user’s past actions and preferences.

There is no better way to identify interests or needs in real time – or to stimulate them, with just-in-time advertising or discount coupons. Link it to a payments system, and a smartphone becomes the perfect tool for translating inchoate desire into instant gratification. This, at least, is the ­tantalising possibility that is being ­dangled before the world’s retailers.

It explains why Apple is headed for the payments business, and why – despite their slow adoption in most developed markets – mobile payments are the next likely digital battleground.

However, to most ordinary consumers, this looks like a solution in search of a problem. There are some situations when paying with a smartphone is a natural extension of a mobile service, like ordering and paying for a taxi. But, in the developed world at least, plastic cards are widely held, easy to use and universally accepted.

It is a different story for retailers. While payment cards can yield plenty of data after a purchase has been completed, only smartphones extend that knowledge into the pre-transaction world. With a deeper understanding of who just walked through the door, ­tablet-toting store assistants will be armed and ready to make a sale.

Apple chief executive Tim Cook is not given to revealing his hand on future plans but, earlier this week, he couldn’t resist giving a nod to the “big opportunity” in payments presented by the large volume of commerce already passing over Apple’s mobile devices.

His company has two key assets at its disposal. One is the database of 575 million credit card accounts that it already holds for users of iTunes and the App Store. The other is a knack for making consumers open their wallets or purses. Its smartphones and tablets may be losing the numbers game to those running Google’s Android, but Apple is unrivalled when it comes to getting people to spend hard cash in its digital stores.
Where’s PayPal’s new ideas?

While this gives Apple a head start, it will not be decisive. Scale and network effects are certainly useful factors to have on your side in the payments business: the more buyers there are on a platform, the more merchants will be attracted, and vice versa. But, as PayPal proved in the first round of the digital payment wars, upstarts with new ideas can be surprisingly successful.

PayPal is now at something of a crossroads, following a call from activist investor Carl Icahn for it to be spun off as an independent company.

Owner eBay has made a strong case that the synergies of keeping the payment system tied to its slower growing online marketplace outweigh the ­benefits of setting it free, particularly given the huge disruption that would come from disentangling the two businesses. However, that does not make up for an uncomfortable feeling that ­PayPal has been falling behind in the innovation game.

The new ideas that are shaping ­payments have been coming from elsewhere. Square came up with a smartphone widget that lets anyone take credit card payments, and Swedish venture Klarna lets buyers pay for purchases later. Stripe – which is growing fast among new online businesses ­looking to integrate a payment option into their services – has also shown that a modern, developer-friendly platform can outstrip older payment options that date from the beginning of the internet age.

These are cautionary lessons for Apple as it patiently assembles the elements needed to build a full payment service around its mobile devices.

The pieces include Passbook, a ­digital wallet for storing coupons or tickets that could be extended to include payment details; Touch ID, a biometric way for iPhone users to authenticate themselves each time they access their device; and iBeacon, a technology baked into iOS 7 that lets retail stores communicate over Bluetooth with nearby smartphones.

Fitting these pieces together will require the creation of not just a great experience for iPhone users, but also a payment method that merchants will deem safe, reliable and as widely acceptable as plastic cards – while also producing enough extra value to justify the costs and potential confusion that will result. Google, which has struggled to get adoption for its Wallet service, can attest to how hard this will be.

But, 10 years after its first move into digital commerce with the launch of iTunes, Apple finally looks ready to take another big leap.