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Apple And New Markets: IPayments?

|Includes:Apple Inc. (AAPL)

A flurry of AAPL-related news came from interesting sources lately, especially from the WSJ. Among them were:

- New, larger iPhones for 2014 (a good article on SA - and possible links to solar/sapphire-glass related moves (GTAT) - can be found here)

- Work in the medical/sensor/fitness fields (for future wearables ?)

- Updated Apple TV box (possibly with an app store, especially support for games and/or dedicated third-party game controllers ?)

- Expansion of iRadio coverage and hardware (especially the iPhone) into more territories (the deals with CHL in China and NTT Docomo were very important for the iPhone, new deals are coming in SE Asia and Russia.)

- Mobile Payments and related network initiatives (iBeacon, Payments)

I wrote about the topics listed in earlier blog entries. I will therefore just cover the last one in this update: Mobile Payments.

The WSJ's latest article on Apple and mobile payments:

Apple Inc. is laying the groundwork for an expanded mobile-payments service, leveraging its growing base of iPhone and iPad users and the hundreds of millions of credit cards on file through its iTunes stores.

Eddy Cue, Apple's iTunes and App Store chief and a key lieutenant of Chief Executive Tim Cook, has met with industry executives to discuss Apple's interest in handling payments for physical goods and services on its devices, according to people familiar with the situation.

In another sign of the company's interest, Apple moved Jennifer Bailey, a longtime executive who was running its online stores, into a new role to build a payment business within the technology giant, three people with knowledge of the move said.


A payment service would launch Apple into what is becoming a fierce battle over how people pay through mobile devices. Other players include eBay's PayPal unit, Google Inc. and startups such as Square Inc. and Stripe Inc. Forrester Research estimates that Americans will spend $90 billion through mobile payments by 2017, up from $12.8 billion in 2012.


Ever since AAPL eschewed incorporating NFC chips into its phones back in 2011-2012 there was speculation Apple how and when might enter the (mobile) payments space in alternate ways.

Some of the key challenges for technology companies like AAPL entering this space:

  • Low margin risks (opposed to Apple's high operating margins)
  • Reversing dubious/erroneous transactions (either siding with the vendor or buyer. Each side will try to game the system, one party most probably won't be happy due to the system's design.)
  • Security and Privacy Questions
  • Compliance (Money laundering, cross-border transactions)
  • Antitrust issues in some countries because of Apple's size

The main open challenge in my opinion is therefore not the technology used (I'm sure Apple can solve these roadblocks with or without using technologies such as NFC or iBeacon), but rather margin and business model questions.

One key question: Will Apple build its payment service stand-alone and start fresh or build it (at least in part) on top of existing credit card company layers (like PayPal and others did).

That decision will ultimately influence how disruptive a (mobile) payment solution from Apple is going to be...

I'm especially skeptical on the possible margins Apple can achieve and how it can create its payments system hardware-agnostic - Apple is not known to be suited at creating services outside of its ecosystem (iTunes on Windows machines being the primary lone exception so far).

Stocks: AAPL