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Why the mobile payments market isn’t Apple’s for the asking

Perhaps someday the only thing people will take shopping is their iPhone - but probably not.

Perhaps someday the only thing people will take shopping is their iPhone – but probably not.

We recently wrote about how a mobile payment-related patent filing by Apple had led to some fevered speculation in the mobile tech world about the company’s position on near-field communication (NFC) technology. Now, some comments by Apple CEO Tim Cook and others have produced and even bigger explosion of interest in its larger ambitions vis-a-vis mobile payments.

The excitement started on Monday, when Cook spoke following the release of a fourth-quarter earnings report and a warning from the company that its revenues might fall in the current quarter, something that has not happened at Apple in more than a decade. No doubt in a bid to draw attention from this warning – which promptly sent Apple shares sliding – Cook spoke of the “big opportunity” the company saw for itself in the area of mobile payments.

This being Apple, the tech and business press did the rest, with much of the resulting coverage along the lines of this piece on Inc. called “Apple could own mobile payments.” Among the top reasons cited for the notion that Apple might quickly conquer the space are its cache of more than half-billion credit cards already linked to iTunes and App accounts and its Passbook feature, which allows for merchant payments and the storage of loyalty cards and coupons, and which is already accepted by some large American retailers, such as Starbucks and Dunkin’ Donuts. Apple’s iBeacon technology for proximity broadcasting and its Touch ID fingerprint sensor system are also seen as powerful weapons in any push to dominate mobile payments.

Yet there are also reasons to doubt things might be so easy.

For one thing, even though an aggressive move into the mobile payments area might be welcomed by investors and analysts – one analyst said the revenue warning meant the company “needs to find twenty billion in revenues from somewhere” – they will not be happy about some of the costs involved in a broad push into mobile payments. Chief among these costs would be a compression of the hefty margins the company has enjoyed on its mobile-related hardware. Is Apple really going to let its handsets become commodity products in order to make sure mobile users around the world are able to afford a Touch ID-equipped Apple handset?

Another issue is focus. In his remarks Cook stressed that the company is looking to enter a major new product line this year. But despite the immediate focus on mobile payments it is not certain Cook didn’t mean something else (a new, improved Apple TV?). The spectacular success of iTunes and the App Store make it easy to forget that Apple remains a designer and builder of hardware, not services.

But even without the question of where mobile payments fits in with Apple’s “company DNA” there is the brutal competition that already exists in the payments space, and which includes both Apple-rivaling giants like Amazon as well as myriad smaller firms such as Cellum. And remember, in the first stage of digital payments, it was a smaller firm – PayPal – that ended up dominating.

So if Apple decides that mobile payments is its “new new thing” we can expect it to come up with some solutions that are beautiful and irresistible to certain segments in the market. But it is far from inevitable that it will own the market.

One thought on “Why the mobile payments market isn’t Apple’s for the asking

  1. Pingback: Cellum welcomes Apple to the mobile payments party | MOBILE PAYMENTS BLOG

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