Don’t Expect Apple To Radically Remake Electronic Payments, Researcher Says

Apple Inc. is expected to release its iPhone 6 next month and, not surprisingly, speculation about the coming smart phone’s features is intense. But a new report from IDC Financial Insights cautions that Apple is not out to reshape the mobile-payments industry.

Many of the rumors in payments circles center on whether the new iPhone will include near-field communication (NFC), a technology that would facilitate contactless payments. Cupertino, Calif.-based Apple’s chief smart-phone rival, Samsung, provides NFC in the newest versions of its popular Galaxy phones. And many people have speculated about an expanded role for biometrics. Apple’s Touch ID technology for the iPhone 5S, the phone’s newest version at present, includes a fingerprint scanner that lets users buy in the iTunes Store by swiping a finger across the home button.

The notoriously secretive Apple is saying little, which simply adds to the rumor mill, notes James Wester, practice director for Worldwide Payment Strategies at Framingham, Mass.-based research firm IDC Financial Insights. And given its history-making products and innovations—the iPod portable music player, the iTunes music library, iPhone, the iPad tablet computer, and App Store digital-content marketplace, people expect “the next big thing” to come from Apple.

“Because they don’t say anything, we project all of those things we’d like to change in payments onto Apple,” says Wester, author of a new report titled “Business Strategy: Apple and the Payments Tipping Point.”

Apple declined to talk with Wester for his report. Wester based his observations on recent IDC research about mobile payments and the smart-phone market, as well as Apple’s recent product developments. Apple did not respond to a Digital Transactions News request for comment.

Wester suggests tamping down the expectations. Apple isn’t looking to reshape the payments world; it’s mainly interested in making payments easier for its customers, he says. The next iPhone “is going to be another incremental step in making purchases on their devices more convenient,” says Wester. “They make consumer electronics … what they want to do is increase the utility of those devices.”

Apple’s previous payments-related incremental steps include the Passbook mobile app introduced in 2012 for storing digital loyalty cards, and the rollout of its EasyPay service that enables customers to buy lower-cost items in its physical stores by swiping a card through a specially configured iPod touch.

So what’s the next incremental step in the iPhone 6? “My guess is that they will probably include NFC,” says Wester, but he adds: “It may not conform to the way we expect it.”

Despite being included in an increasing number of Samsung and other smart phones running Google Inc.’s Android system, NFC hasn’t yet lit the payments world on fire. Thus, even if it includes NFC, the iPhone 6 might put more emphasis on the technology’s more proven uses, including user identification, building entry, and device pairing, according to Wester.

But given its market-changing previous products and services, why wouldn’t Apple seek to fashion mobile payments in its own image through the iPhone 6? The company, according to Wester, realizes a big payments operation, perhaps one in which it offers services akin to those in the iTunes Store outside of Apple, or acts as a merchant processor, probably wouldn’t be very profitable. And payments is a complex business. “They’re not looking to compete with the companies that are already doing that,” he says.

While watching for seemingly small advancements may not be as exciting as seeing a revolutionary new service, anything Apple does is likely to advance mobile payments, according to Wester. In part, that’s because Apple has 800 million iTunes users (more customers than online-payments giants PayPal Inc. and Amazon.com Inc. have combined), most of whom have supplied credit or debit card credentials to Apple. Some 41.6% of 1,022 mobile buyers surveyed in a 2014 IDC study had used iTunes for a purchase, second only to PayPal at 58.6% Further, competitors tend to copy Apple’s innovations.

All that means the next iPhone could push mobile payments across a “tipping point” in which adoption swings sharply upward, even if that adoption does not “explode immediately,” the report says. “But it does mean that the move toward mobile payments will increase at an ever faster rate.”