The fact that Tim Cook hinted that Apple might be getting into payments is no surprise. It’s more of a “duh.” Apple has the user accounts, consumer credit cards on file, and millions of iPads and iPhones in market. The launch of Touch ID and the iBeacon sensor only connect the dots even further.
Apple’s Passbook paves the way for expanding the wallet beyond loyalty cards and into the ability to make online and offline payments. The launch of the Touch ID addresses security concerns and helps prevent unauthorized payments should the phone, or “wallet”, be lost.
In the online world, it’s not a far stretch to imagine a consumer using their Apple ID to authorize a charge to their credit card for a purchase made on an e-commerce site. However, competitive pressures from Visa, MasterCard, and PayPal may make convincing e-commerce sites to accept Apple payments that much harder. One recent article points to Apple making payments as part of the iOS developer kit…which would easily provide code needed for a developer to add a payment feature to their mobile commerce app.
However, the opportunity for Apple gets more challenging in the offline retail world. Yes, iBeacon creates a network to enable mobile payments through detecting and authenticating a mobile device. Cool. However, Apple faces the challenge of convincing merchants to adopt the payment processing hardware, dongles, etc. Google, Stripe, Square, and Dwolla also face this problem, among others. Even with its big brand recognition and marketing strength, Google was not able to grow offline retail adoption of its wallet.
So what are the opportunities for Apple moving forward? Apple could build its payments business through acquisitions, or strategic partnerships. Square has been a leading innovator in the payments space, is building merchant adoption and has a strong focus on UI/design given their recent hardware release. While a Square acquisition may be expensive, Apple would quickly acquire payments processing technology, a growing user base of merchants and a design focused group of developers. Bloggers have also identified Stripe as a potential, less expensive acquisition.
I think Apple can benefit the most, however, from a strategic partnership with PayPal. Recently a LOT has been written about PayPal feeling the heat from Apple and pitching to help build out their payment network. Some people see this as a signal PayPal is feeling threatened. Yes, the competitive threat is there. However, PayPal has many elements that Apple needs to be a leader in this category. I think together, PayPal and Apple can create a break through wallet that defines the mobile wallet.
First of all, PayPal has addressed many of the cross-boarder (currency) trade challenges that Apple will eventually face. Remember, Apple products are ubiquitous and they face hurdles in every new market they enter. We all know that Apple will not want to limit payments to the US market.
Secondly, PayPal has a merchant program in place and is regularly improving the product feature set. This in market learning will only improve PayPal’s ability to deliver a solution merchants actually want and can easily adopt. PayPal is also co-marketing with merchants to drive consumer adoption.
Lastly, PayPal is seen as the “most trusted” mobile wallet brand as defined by a 2013 Javelin study. Why is this important? In light of the recent data breaches, mobile security will be a big factor for not only consumers, but for merchants. Yes, Apple’s fingerprint ID is fantastic to access the device and authorize transactions. However, there is a lot happening in the payment processing back-end that PayPal has focused on securing for almost 20 years. A partnership with PayPal will enable Apple to address this hurdle and avoid a dreaded data breach. Should the unthinkable actually happen, culpability would most likely NOT fall squarely on the shoulders of the world’s number one brand.
Eric Dunstan 
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