Mobile-Payments, NFC And The Next Apple Product

Sep. 25, 2012 3:19 PM ETAAPL, AXP, DFS, EBAY, GOOG, GRPN, MA, MSFT, SBUX, V8 Comments
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Bidness Etc

Growth in the Smartphone Industry has been phenomenal in the last couple of years. This unprecedented growth in smartphones, and the shift of computing to handheld devices, has created a unique business opportunity. Processing transactions through mobiles seems to be the next growth frontier in the technology sector. As computing shifts to 'pockets', and ecosystems are established, it seems likely that successful ecosystems will totally eliminate plastic money. The two biggest ecosystems in the Smartphone Industry are Apple's (AAPL) iOS-based devices and Google's (GOOG) Android. Microsoft (MSFT) is trying to squeeze into this industry with its WP8, and with support from its PC OEMs.

There are two different available methods for mobile payments. The one presented by Square, and now Groupon (GRPN), allows you to attach a device with your smartphone, which then works as a card processor. Google has eliminated the card altogether by introducing "Google Wallet," which saves your card information on Android devices; eliminating the plastic altogether. According to Gartner, the industry is currently worth $172 billion, and can grow to approximately $600 billion by 2016; showing an approximately 90% annualized growth.

Mobile ecommerce requires the usage of cellular phones and mobile broadband connections. If we look at the table given below, we can see that the Americas and Europe have more than 100% cellular subscription. More importantly, from an e-commerce perspective, both have high active mobile broadband percentages of 30% and 54%, respectively.





The Americas

Mobile cellular subscriptions (millions)






Per 100 people






Active mobile broadband subscriptions (millions)






Per 100 people






Source: International Telecommunication Union

Mobile Payment Industry

The Mobile Payment Industry has seen a lot of interest in the last year. Technology heavyweights such as Ebay (EBAY)-owned Paypal and Google have entered the industry. According to a research by Gartner, this industry can reach $600 billion by 2016. There are a number of different statistics available on the growth of mobile payment. The following table shows targets set by different research groups on mobile payments (m-payments):

Research Organization



$172 billion by 2012 and $617 billion in 2016

Yankee Group

$241 billion in 2011 and $ 1 trillion by 2015

Portio Research

$69 billion in 2009 and growth to $634 billion by 2014

Juniper Research

$240 billion in 2012 and $670 billion by 2015

Key Players

The two biggest players in the U.S. Mobile Payment Industry are Google and Paypal. Google released its updated Google Wallet in August this year. This newer version allows users to use all cards, like Visa (V), MasterCard (MA), American Express (AXP) and Discover Financial (DFS). Using Near Field Communication (NFC) technology, users can make transactions through their smartphones. All user information uploaded on the devices is saved in cloud storage on secure Google servers. Another alternative methodology has been introduced by Square payments. Square, based in California, was the first to bring a mobile attachable payment device. The Square device can be plugged into any Android or iOS-based device. Users can swipe their card through the device or just enter their information to complete a transaction. Square handled transactions worth $2 billion last year, and signed up a major client, Starbucks Corp (SBUX).

Groupon has recently announced a similar device, which can be attached to any iPod touch or iPhone. Merchants who are already partners of Groupon will get a discount on these transactions. The biggest news for this industry is the recent acquisition of Authen Tec. by Apple Inc. The technology giant that happens to be the most valuable company in the world takes its "ecosystem" mantra seriously. Authentic was bought for a $340 million valuation by Apple. The company is involved in fingerprint recognition software for both phones and tablets. This acquisition is a clear indication that Apple will soon be integrating mobile payments into its ecosystem.

Making Money

We believe that Groupon, Google, PayPal and EBAY can create shareholder value with their ventures into mobile payments. The primary advantage for EBAY, GRPN, GOOG and Apple will be the consolidation of their ecosystems in general. Google is providing its services for free, while GRPN and EBAY are fighting over low profit margins.

The total elimination of the plastic card will be the bigger winner in the long run; therefore, investors should put their money behind NFC technology. Right now, there are 34 million handsets with NFC, and this number is expected to increase beyond 100 million by the end of 2012. Moreover, according to Gartner estimates, by 2015 more than 50% of all handsets will have NFC technology. The biggest player in NFC hardware right now is NXP Semiconductors (NXPI). NXP chips are installed in devices supporting Google Wallet, Nexus S, Windows 8 Surface Tablet and some Sony smartphones. The company has not missed analyst expectations in the last 3 quarters, and the stock is currently trading at forward P/E of 9x and P/S of 1.5x. Out of nine analysts, 6 had given a buy or strong buy rating for NXP last month.

Next Big Apple

We believe Apple is the best-placed technology company to establish its dominance over the Mobile Payments Industry, and it has already shown its intent by buying Authen Tec. Google Wallet is the market leader in m-payments, but there are a number of limitations that are inherent in the wallet business model. First of all, Google does not make any money on Google Wallet transactions, except through advertisements. Secondly, it is reliant on hardware manufacturers for integration. Any pitch becomes better with the Apple brand name attached to it, but when "trust" and "reliability" (uploading credit card information in the cloud) are involved, Apple's m-payment solution will become the first choice. We believe users won't mind paying a small fee for their transactions in exchange for increased security. The possibilities with an iPhone m-payment system seem to be limitless. For instance giving away "Apple credit" redeemable on iTune stores & Apple stores, or a probable Apple venture into credit. With more than $120 billion in cash and more coming in from the iPhone 5, history says Apple can go to any lengths to keep users locked onto its ecosystem.


Investors should consider GOOG, GRPN and EBAY to be indirect beneficiaries of the expected boom in m-payments; with the strengthening of their business models. NXP semiconductors will be a direct beneficiary from the growth in NFC technology, and we are bullish on NXPI. We believe m-payments can be the next big thing for Apple. Since Apple keeps quiet on its product development, all we can do for now is speculate.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Technology Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.

This article was written by

Bidness Etc profile picture
Team of investment professionals including former hedge fund manager, trader and analyst at top tier $10 billion hedge fund. Members include investment professionals who oversaw research and trading organization of 50+. Follow us on :

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