Does iWallet iPhone mean Apple versus PayPal?

November 16, 2010 11:32 AM EST

We've talked before about Apple's plans for the iPhone as an iWallet, now it looks like former ally turned foe, Google's preparing to take Apple on in the same space, with big boss Eric Schmidt telling a panel at the Web 2.0 conference his company feels its got to get NFC (Near Field Communication) into Android's life. Will PayPal endure the new war?

Google makes a grab

The Google chief had a couple of other interesting things to say, changing tune on the iPad v netbook debate he noted that Android is the OS for 'touch' while Chrome will be for netbooks.

Schmidt's statements on NFC support in the future 'Gingerbread'  Android OS are interesting, as they reflect months and years of rumors claiming Apple's working in the same direction.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

The story continues to be the transformation of the iPhone into an 'iWallet'. You'll wave it over a contact point to pay for physical goods at participating retailers. Apple was first reported to be testing RFID iPhones last year.

As I've noted before, this move will have a huge impact on the financial sector. In corporate governance and treasury decisions are already being pondered as to the effect of Google and Apple's move to disrupt payment systems with zero plastic mobile banking systems.

 

"Apple iPhone is set to follow with the iPhone 5 in July. With these two heavy weights weighing in on NFC, mobile payments are sure to dominate the disruptive change cycle in 2011," writes Brett King at Fin Extra.

Different strokes

Apple and Google's models for payment systems may differ. And while Apple's App Store is curated, Google's is not, so security experts will likely look at any systems supported on either platform to check for the potential of fraud.

Google expects to see a wave of start-up firms appear attempting to make some of the moolah available form NFC payment systems.

Apple meanwhile has a host of patents and has already hired in significant expertise in the field, suggesting in the near field AAPL strategy there's some intent to offer its own payment models, as well as allowing app-based solutions such as that offered recently in the UK by Orange and payment processing systems from Square.

Think about it. Apple's clearly in a strong position to take on PayPal with a move into payment systems.

Using iTunes as a payment system, iPhone users could conceivably pay for items with payments charged to them via iTunes. iTunes already has 160 million or more registered users. Can PayPal ramp-up the user experience sufficiently to take on AAPL style?

Apple will lead the evolution

Apple will also benefit from a non-fractured market. While not all Android systems will offer NFC features, all iPhones will.

This means, at least at first, the most significant deployments of mobile payment systems will be through Apple's devices. This will give the company a lot of influence of the evolution of such systems.

There's a good reason why such a system could see wide usage in an economically uncertain world. iPhone users spend more, and have a tendency of maxxing-out their credit cards.

"iPhone users leverage credit cards significantly more than Android, BlackBerry, and Windows Mobile users," a new study by Pageonce has found.

"The average iPhone user has a 35% higher balance (this is carried balance plus new transactions plus any fees/charges) on their monthly credit card statement than the average Windows Mobile user," said COO Steve Schultz.

It seems a safe bet to assume credit card companies want to get friendly with all those iPhone users.

Look: Orange and Barclaycard in the UK are working away at creating NFC-based payment systems and this week launched an iPhone app which lets users manage their Orange credit card.

Disruptive forces go over the top

In a report which also speculates Apple's existing iPhone 4 may already have an NFC chip inside, which isn't yet activated pending a future software upgrade, Nearfield Communications World also notes:

  • Confirmation that AT&T, Verizon Wireless and T-Mobile USA have formed a joint venture to introduce NFC-based mobile payments services in the US could come as early as tomorrow.
  • Bling Nation is set to roll out its mobile payments technology across the United States, using NFC phones in early 2011.
  • Nokia has revealed it will switch on the NFC functionality built into its C7 smartphone in early 2011.

Apple's moves to deliver NFC-based systems took a huge leap in terms of speculative happenstance way back last summer, when the company hired an NFC and mobile payments expert, Benjamin Vigier.

A June 2009 Apple patent revealed it has developed a method for building an NFC antenna into a touch screen.

Cult of Mac speculates this development could go very deep. Apple may intend using the authentication potential of NFC in the iPhone 5 as a way to finally deliver a portable Home folder. Essentially you sit by any PC and use your phone to confirm your ID, after which you have full access to any file or application held on your authorized base computer. A complete portable computing experience.

Apple's been quietly plotting its course for some time. It seems ready to bring its solutions through at about the time contactless payments are set to reach critical mass.

One million contactless transactions were conducted by Barclaycard and Barclays Bank cardholders in the UK this year, a report claims.

"We are reaching a tipping point," said Stuart Neal, head of payment acceptance at Barclaycard.

"The number of terminals has gone from 25,000 at the beginning of 2010, to 42,500 today, and this is before the big grocers like Co-operative begin their roll out in earnest."

Who is at threat?

As customers move to use these systems to pay for goods, established financial houses face disruption to their business. There's lots of questions here.

  • Should iTunes find success as a form of payment broker for NFC systems, what's to stop it gaining a bank license just as PayPal already has done?
  • If iTunes were to gain such status, would people stick with the damaged reputations of the players in the banking sector today, or move on to other contenders?
  • Has PayPal got the ability to match Apple's gift for seamless user experience?

I look forward to finding out in the months ahead.

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