The iPhone 5 And Mobile Payments - Yay or Nay?

Chatter on the Internet is fraught with speculation over Apple’s (AAPL) next iPhone dubbed by those speculators as the iPhone 5. From how big and how thin the device will be to how large the screen will be and whether or not it will have an HD display or not are frequent topics among the Apple gossip machine. Apple already shared some of what can be expected in its next iPhone last June when CEO Tim Cook and others unveiled iOS6. That mobile OS has a number of new features, including 3D maps and greater integration with Facebook (FB), but the one that I am most interested in is Passbook.

The opening description describes Passbook this way - “your boarding passes, movie tickets, retail coupons, loyalty cards, and more are now all in one place." From a consumer point of view, this move is one step closer to only having to bring our keys and iPhone with us when we leave home. In other words, it moves us closer to leaving our wallets at home.

The key word is "closer" and that has led to the rumor mongering that Apple may go one step further and introduce its own mobile payment solution.

Already there are a number of competing mobile payment solutions including:

• Google's (GOOG) Google Wallet, which is a virtual wallet that stores your credit and debit cards, offers, and rewards cards. Using Near Field Communication (NFC), a secure, wireless connection to transmit payment details to the merchant, you can tap your phone to pay in-store using Google Wallet anywhere MasterCard® PayPass™ is available. Google Wallet is already working with check-out scanners in more than 100,000 retail locations. Big-name stores such as the Gap (GPS) as well as its Old Navy and Banana Republic properties, OfficeMax (OMX), Toys ‘R’ Us Walgreens (WAG), Coca-Cola (KO), and Macy’s (M) make up some of those retail locations. The drawback to Google Wallet is that it currently is only available on select Google Android powered smartphones. Currently that equates to a little more than a handful of devices at Sprint (S), AT&T (T) and Verizon Wireless (VZ).

• Retail heavies including Wal-Mart (WMT), Target (TGT), Best Buy (BBY) CVS (CVS) and others recently announced the formation of the Merchant Consumer Exchange (MCX). MCX will focus on offering merchants a mobile-commerce solution capable of seamlessly integrating a wide range of consumer offers, promotions and retail programs. The eventual application is expected to be will be available on most smartphone platforms.
• eBay's (EBAY) PayPal solution that can be used to transact on the Internet as well as in stores  at more than 15 retailers that include Home Depot (HD), Abercrombie & Fitch (ANF), and others. McDonald’s Corp. (MCD) is testing a mobile payments service with PayPal in 30 McDonald’s locations in France.
• The mobile carrier joint venture between AT&T, T-Mobile and Verizon named Isis offers a mobile wallet on smartphones. The Isis Mobile Wallet like Google Wallet uses near field communication (NFC) chips found in many smartphones to store either a user’s credit card data or a pre-loaded amount of digital cash. With their Isis phones, users will be able to make purchases by waving or tapping their smartphones on an Isis-compatible check-out scanner.  Over the last year, Isis has announced a number of partnerships including point of sale partners (Verifone (PAY), Ingenico SA (EPA: ING) and ViVOtech) payment networks (Visa (V), MasterCard (MA), Discover (DFS), American Express (AXP)) and device makers (HTC, LG, Motorola, RIM, Samsung, and Sony Ericsson). National retailers opting into Isis include the clothing store chain Aéropostale (ARO), Coca-Cola (KO) vending machines, Dillard’s (DDS) department stores, Foot Locker (FL) and its subsidiary Champs Sports, Jamba Juice (JMBA) and Macy’s.
• Electronic payment company Square offers an app for both the iPhone and Android powered smartphones. In the app, you link a credit card and at checkout in participating stores your name and photo appear on the register and the cashier confirms it’s you to complete the sale. Starbucks Corp. (SBUX) recently announced it will allow customers to pay for drinks and other products using in its stores Square’s mobile solution. Beginning this fall, Starbucks customers will be able to use Pay with Square at 7,000 Starbucks locations.
• And others

Reading over that list it be becomes clear that a number of companies are eyeing big rewards in the mobile payment space. With smartphone penetration at lofty levels in the U.S. and Western Europe, vendors for those devices need to foster replacement demand and offering mobile payments is one way to accomplish that. Two beneficiaries of that NFC deployment are NFC chip suppliers NXP Semiconductors (NXPI), Inside Secure SA (EPA: INSD), Broadcom (BRCM) and CSR (CSRE).

But does that does that mean that Apple will introduce its own NFC powered mobile wallet near term?

Arguably we are still in the early days of mobile payments as evidenced by the number of competing solutions. If we look at the history of the iPhone, Apple tends to wait until certain technologies are on the cusp of going mainstream before implementing them. The original iPhone was a 2.5G version and 3G was not embraced until the second model was brought to market in mid-2008. Even the most recent model introduced nearly a year ago did not embrace the latest mobile communication standard - 4G LTE - even though smartphones from other vendors had. Apple was also late to adopt the ubiquitous Bluetooth technology in the iPhone as well.  If Apple finally adds 4G LTE and increases the display size in the new iPhone model, then odds are Apple will be very concerned with battery life. That could mean ruling out NFC chips until they mature further and are more battery friendly than current versions. Another option would be for Apple to use Bluetooth Low Energy for payments and Apple has already included those chips in the iPhone 4s, but more on that another time.

While I could be wrong, if history holds, more likely than not Apple will not offer its own NFC mobile payment solution as part of the iPhone 5. Already you can load a number of mobile payment apps onto your iPhone including Square and PayPal.  As Apple has done in the past, it will probably wait until mobile payment technology has matured and the infrastructure has been built and then introduce a very slick, easy to use solution building on what others have done. If history holds, that mobile payment solution will be the one that drives mass adoption.

Full disclosure: Mobile payments is one aspect of my Cashless Consumption PowerTrend and subscribers to PowerTrend Profits may utilize my 8 Great PowerTrends in evaluating investment opportunities.

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