The future, predicted: How Apple can “own” mobile payments (UPDATED!)

One of the domains I pay particular attention to is person-to-person and mobile payments (I’ve also done some design work in this space). Right now, there is a lot of discussion/debate/chatter around near field communication (NFC) technology and how it can be intergrated with mobile devices to support payments “on the go.” Several mobile hardware manufacturers have already integrated NFC chips in their shartphones, and Google has an active strategy around integrating NFC and mobile with their Google Wallet product.

This is all well and good, except the 800-lb gorilla in mobile, Apple, has not presented their mobile payments solution yet. I think that they will reveal it soon, though… in September, with the release of the iPhone 5. I suspect that Apple will present a complete integrated solution at that time, and if they leverage assets they aready have effectively they could very quickly dominate the space.

Here’s what I think Apple is going to do, based on years on following the company as well as some other research.

Apple will zig, instead of zag: It won’t be NFC

Apple tends to define their own path, so they can “own” it. NFC is what everyone is talking about… so I think Apple will go in a different direction, and adopt the low-energy bluetooth protocol. Not just because it’s different, but because of some of the benefits that the protocol provides that NFC doesn’t… primarily compatibility and security. More on “compatibility” in a moment…

They’ll provide an complete end-to-end solution

Apple will not put out half a solution, they will roll out a complete infrastructure to send, recieve and process payments. How? Through all their products: the iPad, the iPhone, and the MacBook. Apple can quickly push software updates and apps through their app stores to allow all these programs to securely send payment information to each other, using bluetooth. They can also provide simple accounting and reporting apps for small businesses, allowing for analysis and easy transfer of payments recieved into business accounts. An iPad is a lot cheaper than a dedicated point of sale system. Personal payments can be transferred to customer’s checking accounts… or converted to credits that can be used on the app store.

They can leverage a huge user base

There is no need for Apple to ask customers to setup an account to make these mobile payments from… They already have customer’s credit cards on file, through their iTunes accounts. Millions of customers. That “default payment method” will be all that most customers need to use the service, and the setup process will be as simple as installing a new payment app and logging in to authorize the app (and probably agree to some new terms and conditions).

They’ll purchase Square

Square provides a great payment system with integration with iOS and Android devices. I expect Apple to buy it, for its talent and technology… and to remove a competitive solution from the marketplace.

Apple will emphasize security and guarantee transactions

Apple already has the “find your iPhone” service, and offers remote wiping, and I’m sure that they will emphasize this when they roll out their mobile payment process. One of the main fears customers have of mobile payments is losing their phone and someone using it to buy things with it. Apple can easily “force” a PIN login is required if you have activated mobile payments, as well as additional gurantees that can alieviate customer concerns.

The End Game

Why does Apple want to get into mobile payments? Primarily to prevent the competitors from dominating the domain… and also to sell more devices. Easy mobile payments would be a huge value-add to motivate many users to buy Apple hardware. They can structure the “rules” to get a chunk of every payment made with such a service. And if Apple wanted to they could “lose money” on such a service for years in order to dominate the channel (they only have $100 billion on hand, after all). It’s the razor-razor blade scenario – lose money on the razor, make money on the blades. They can lose money on each payment made through such a system because it locks customers into the Apple hardware ecosystem… an ecosystem with very high-margin devices.

Apple has already started testing a mobile payment system… in their Apple stores. If you download their Apple Store app, you can buy items in the store right now… scan a barcode with the iPhone camera and the app will charge your iTunes account for whatever you want (again, using the credit or debit card you already have on file). Expect their mobile payment to leverage the camera in a similar way.

Finally, customers love Apple and hate banks. Apple has incredibly high customer satisfaction numbers, much higher than most financial institutions have. Therefore consumers will be a lot more open to a payment system that comes from Apple than from a bank. This will help Apple get to a “critical mass” with users… and change how people do things. Again.

UPDATE: Apple’s World Wide Developer Conference was this past Monday, and one of the many features Apple revealed to the world was an app coming for iOS6 called “Passbook.” While not a digital wallet per se, Passbook will allow users to store loyalty cards and “stored value” cards (such as gift cards) as well as tickets and airline boarding passes. It’s not a full-fledged payment system, but it’s not a stretch to say that it could be the foundation for one.

Also, one of the first thing CEO Tim Cook mentioned at the keynote announcing Passbook was that Apple had over 400 million users, and all of them “have a credit card on file.” Apple currently gets away with “batching” credit card trasactions for app store purchases, costing VISA and MasterCard quite a bit of transaction revenue. If Apple starts batching credit card transactions for everyday purchases, too… well, let’s just say I’m just glad I don’t work for VISA or MasterCard.

With Google Wallet struggling, it is a very real possibility that Apple will get people acclimated to using Passbook and then add payments to it. Apple is like that… they are very methodical and incremental. They do the first phase of a plan very well, they gauge user response, then then move on to the next phase. Google, on the other hand, goes “all in” and ship a beta out to the world before all the necessary pieces and partners are in place… and that is the problem with Googe Wallet… and why they often fail.

And I am just geeky enough to quote the Emperor from Return of the Jedi: “All is going as I have foreseen…”

Joseph Dickerson is a user experience professional and UX Lead for Microsoft based out of Atlanta, GA. He has implemented processes in user testing, design and ethnographic research and provided design and consulting services for many different projects and organizations.

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