Rumors Cast Apple’s Prospective Role as a Payments Provider as a Done Deal

In case you spent the entire Labor Day long weekend in a fishing boat on a remote lake, you could barely miss the stories moving over the business wires in recent days about Apple Inc. and electronic payments. In sum, the iconic computer maker and iTunes and App Store provider has struck agreements with American Express Co., MasterCard Inc. and Visa Inc. on some sort of payments service, and it also has a deal with NXP Semiconductors N.V., a Dutch company that produces near-field communication (NFC) products.

The reports cited unnamed sources, and the ever-secretive Apple is saying nothing ahead of major event set for Sept. 9 in San Francisco at which it is expected to unveil the next iteration of its 7-year old iPhone, the iPhone 6. But if the rumors are to be believed, the new iPhone will come equipped with an NFC chip that facilitates mobile payments. Buyer authentication might come from Apple's Touch ID, a fingerprint sensor that's included in the current iPhone 5s. It’s also possible that Apple will include an NFC chip in a so-called wearable computing device such as a watch.

Cupertino, Calif.-based Apple has disappointed the payments rumormongers before, but the hints chief executive Tim Cook has dropped and the recent speculation involving specific partners are producing a good amount of smoke around the notion that the company with its 800-million iTunes accounts is finally ready to enter the payments game. “I think there’s a fire,” says Mary Monahan, executive vice president and research director for mobile at Pleasanton, Calif.-based Javelin Strategy & Research. “It’s just a matter of what and when.”

Some observers believe that while an NFC-provisioned iPhone would be usable for mobile payments, Apple will play up the other more proven uses of NFC, a wireless technology that allows devices at short range to exchange information. NFC can be used for secure building access, ticketing, and the provisioning of electronic discounts and special offers from so-called smart posters or billboards.

But given its history of trend-setting, anything Apple does in payments could have huge implications. While a growing number of smart phones running Google Inc.’s Android operating system have NFC chips, including Samsung’s most recent Galaxy models, a new iPhone might have more impact on consumer and merchant awareness of NFC even though there are more Android phones than iPhones. So far, NFC-based payments have attracted little interest from either consumers or merchants. “If a company like Apple marketed it, then I think we could change this industry,” says Monahan.

On the acceptance side, an NFC iPhone could greatly affect how merchants equip their point-of-sale systems for the coming of Europay-MasterCard-Visa (EMV) chip card payments in the U.S. with major payment-network deadlines looming in October 2015. Contactless chip card terminals can interact with NFC phones, but many merchants and merchant acquirers are leaning toward using just contact terminals in which the card is inserted, or “dipped,” into the terminal. Such terminals are less expensive than so-called dual-interface EMV terminals that offer both contact and contactless functionality.

A number of national merchants, however, including Wal-Mart, Macy’s, McDonald’s, 7-Eleven, Chevron and Whole Foods, are going with the dual-interface option, says Monahan. The actions of those big merchants together with an NFC iPhone could cause merchants inclined to go the cheaper contact route “to change decisions rapidly,” she says.

Also unclear is just exactly what Apple might be doing with the payment networks, especially the bank card networks. Visa and MasterCard typically do not deal directly with merchants but instead work with them through merchant acquirers. Those acquirers might be the ones taking the lead in promoting NFC as they deploy EMV terminals, according to Monahan.

One potential problem for Apple as Sept. 9 approaches is last weekend’s revelation that hackers had stolen nude pictures of celebrities stored on its iCloud service. “The timing is really terrible,” says Monahan, adding that the incident could take the luster off of any Apple mobile wallet. “[Security] is always the main reason consumers won’t adopt.” Exactly how the cyberthefts happened is a mystery. Apple denied that its systems had been breached, but some observers suggested it provided too many chances for hackers to guess passwords protecting digital content.