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Apple eyes pay-by-iPhone feature

Apple could jump-start micro-payment market

Technology that would let consumers pay for goods with their iPhones and iPads would be a way for Apple to jump-start micro-payments and reduce the transactions fees it pays, an analyst said today.

According to the Bloomberg news service, Apple will introduce near-field communications (NFC) in the next generation of its iPhone and iPad.

NFC lets mobile device owners wave a phone over a short-range wireless receiver or tap the device to make a purchase. The practice is widespread in Japan and has gained momentum in Europe.

If Bloomberg's sources are accurate, Apple's move wouldn't be a surprise. Last July, the company hired Benjamin Vigier , who previously was product manager for mobile wallet, payment and NFC at mFoundry. Vigier conceived and managed the Starbucks mobile payment system on the iPhone, which began taking phone-based payments in 7,500 stores Jan. 19.

Ezra Gottheil, an analyst with Technology Business Research, said today that an iPhone/iPad-based payment system ties together several loose ends.

First of all, said Gottheil, a mobile payment system would give Apple a way to make money a new way.

"Apple doesn't have a revenue stream except for the goods that you buy, so this makes sense," he said, pointing out that its popular iTunes and App Stores, in which it sells soft goods rather than hardware, turn little if any profit. "They'd be sitting right in the middle of the transaction," giving Apple a new source of information about its customers' buying habits.

Apple is well-positioned to put itself in that middleman spot, Gottheil argued, because of its enormous iPhone and iPad owner base, their loyalty to the Apple brand and their demographics. "I can see a lot of [retailers] taking to this, and Apple leveraging [the iPhone's and iPad's] popularity," Gottheil said.

The company's $1 billion North Carolina data centre would also play a part, said Gottheil, pinning a purpose on the new facility, something experts have wrestled with since Apple announced the start of construction in 2009.

Gottheil also saw a connection between a possible mobile payment system and a recent special Apple ran on iTunes. That deal, which ended Monday, priced 2010's biggest albums at $6.99 when purchased with an iTunes gift card.

"Apple pays a minimum transaction fee on every iTunes purchase, so by pushing the gift card, it's an advantage to Apple," said Gottheil. Purchasing a gift card results in just one transaction fee for Apple compared to multiple fees for each $.99 or $.69 purchase on its online music store. "Now they've given you a reason to use the iTunes card," Gottheil said.

Starbucks has used the same strategy to minimise transactions fees for small-scale charges, and to build brand loyalty, both factors Apple could reproduce by tying the pre-loaded iTunes gift cards or existing iTunes accounts to its planned payment processing system.

"That would make mobile payments work better for small payments, whether it's music or apps or a single issue of a magazine," said Gottheil. "Tie Apple mobile payments to iTunes accounts for online purchases, and Apple could get a share of everything."


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