Apple’s iWallet patent shows exactly what Apple could do. This is why I’m excited:
Read this patent for Apple’s iPhone integrating NFC for mobile payments with the iTunes Store.
Now look at $AAPL.
The general theory in mobile+NFC has been this: the moment Apple’s iPhone has NFC for mobile payments, the entire world will embrace NFC. Literally, it’ll be almost over night. Like how Apple made smartphones with keyboards completely irrelevant or an iPad to be the standard for tablets; I think this will change everything.
I believe this will happen for several reasons:
- The iPhone’s overall position as a smartphone sales leader places it either number one or number two in whatever available ranking. An iPhone 5/5s/6 would be able to immediately make a dent in the market.
- The hundreds of millions of credit card accounts tied to an iTunes/App Store account let this feature work immediately out of the box. Setup would be blindingly simple.
- Merchants with NFC swipe capable credit card readers would have to do nothing.
- Apple’s marketing genius (ie: running tons of TV ads showing a product demo) would make understanding how this works ubiquitous.
The hundred billion dollar wrinkle of all this is simple but crazy. If Apple let users put in their bank information into iTunes, Apple will have invented a better debit card.
Of course, it’s actually way more complicated than that but Apple could offer merchants a lower fee to process the transaction (let’s say Apple takes 2% to Visa’s 3.5%), the user doesn’t have to pay anything extra and iTunes would show a charge that would be pulled at little cost from the bank (credit card fees > debit card fees > direct debit payments).
Users would love the superior experience. Merchants would relish a new competitor to the Mastercard, Visa, American Express card fee oligopoly. And Apple would be able to profit on every transaction.
I don’t think Apple is thinking about a NFC payment system, an Apple iPhone enabled NFC payment system will happen and it’s only a matter of time (this year’s 5 or ‘13’s 5s is my bet). The 2nd part that I wrote about, the disruption to the credit card fee oligarchs, is more of an if but I believe Apple’s interests are strong enough that it will absolutely happen. If this is the case, Apple’s stock is worth billions more than what it is today.
Lastly, it’s important to note a final point about Apple. Apple doesn’t go into markets because money can be made. They go into markets because they can make the experience significantly better than the status quo and find healthy profits. Mobile payments as an industry right now is a total mess (Isis, Google Wallet, Wal-Mart+Target) and the credit card fees charged on merchants make no one happy (take a guess what Apple pays out to credit card fees, this can be calculated). This is why the “iWallet” patent is so exciting, a completely better experience is around the corner.