Tomorrow BIA/Kelsey will publish a report on the exploding area of mobile payments. One of our biggest 2011 predictions was how emerging standards in this area will accelerate innovation across the industry.
This will not only apply to obvious areas like mobile shopping and commerce, but also gaming, social networking LBS and search. The land rush is on and competition (and M&A) will be swift over the next year.
Below is an excerpt from the report, exploring Apple’s notable positioning in light of recent reports that it will integrate near field communications (NFC) into the iPhone 5, expected in June. This follows Google’s move to bring NFC to Android.
… But it can be argued that Apple is positioned even better than Google in the NFC picture. This becomes yet another area where Apple and Google will compete (see BIA/Kelsey report, Google and Apple: Best Frenemies Forever).
Apple’s advantage partly stems from the the iPhone’s popularity among buying empowered and technically astute individuals who are more likely to adopt new technologies like mobile payments. But its larger opportunity stems from one word: iTunes.
We’ve long said that Apple has a sleeping giant in iTunes. This stems from credit card relationships with more than 150 million users. Like carrier billing, systems that utilize existing relationships and trust (read: security) have an inherent advantage.
But in both volume and ubiquity, iTunes trumps Google’s Checkout payment processing system. Though Google is a major player in most areas where it competes, Checkout is one product that has failed to appeal to users for many reasons.
This has been detrimental to its mobile app marketplace, forcing it to turn to other methods (like carrier billing) for users to pay for apps and for developers to make money. Apple is better positioned with iTunes as the mobile device evolves into a digital wallet.
Put this all together and Apple has an established payment processing system, existing billing relationships and a quickly growing penetration of the smartphone and tablet market. NFC also furthers its ability to sell its iTunes’ bread and butter (pictures movies, music, etc.).
But that’s not the monster opportunity. Consider the breadth and volume when you move beyond digital products to ones purchased in the physical world. In this light, Apple could be primed to tackle the $6.2 trillion in goods and services purchased in the U.S. every year.
Meanwhile, Apple’s payment processing could evolve to use simpler debit transactions from users’ bank accounts. This could allow it to shed credit card processing fees on the back end, similar to what PayPal has done in linking into users bank accounts.
On the user end, this could be more attractive given pending legislation that will make debit transactions cheaper than credit. It could also grow to include loyalty cards with retailers, and other ways to promote and reward purchase activity.
Add this all up and it’s clear that Apple is sitting on a massive opportunity. But like we said with the prediction that Apple would eventually build or acquire an ad network, it runs counter to its branding and persona as a high-end consumer electronics developer.
But it’s hard to argue with the numbers and how its current mix of assets positions it to jump on new area of tremendous revenue growth. Similar to its move into advertising (but perhaps to a lesser degree) here’s what we said in June 2008:
…As a matter of speculation, Apple sits in an interesting spot here. Though the company has created an open system for mobile application development and access (when compared with the traditional mobile environment), it remains somewhat of a closed system (versus the Web). In other words, applications still require Apple’s approval for inclusion in the App Store.
Does this put Apple in a position of leverage with respect to its terms of agreement and its potential to be a central repository for ad buying and placement throughout its universe of applications? This would be a significant departure from its traditional model and its mission to be a consumer-driven product company. One can’t help but wonder, given this positioning, if it will opportunistically bolt an ad network onto its business model
Moving into payments is a similar concept, but instead leverages Apple’s positioning on the user end. Panning back further, it could do for mobile payments what iTunes did for music and what the App Store did for mobile apps.
Based on all of this, it’s clear that Apple’s next area of growth — quite possibly it’s largest by far — could be streamlining the $6.2 trillion in transactions we make whenever we leave the house.