Visa + Square: Apple's missing iPhone payments link?

Just a few days since Apple [AAPL] began selling Square's payment solution in its retail stores, giant banking firm, Visa, has invested in the iPhone payments company -- and I think this could be an important step toward NFC-based credit processing for Apple's iPhone.

A solution looking for a standard

I've been discussing Apple payment processing solutions using Near Field Communications (NFC) chips for some time. There's so much interest I even ended up addressing a treasury management conference in Geneva.

The big challenge to such systems is the lack of a standard, widely-approved NFC payments system. Analysts I've spoken with characterize the current landscape as one in which different banking groups support different systems -- there's no standard system.

Worse, all these differing systems have been set-up on an ad hoc basis in order to preserve the banking system's hegemonic control over payment processing.

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This confused situation means that were Apple to bring payment systems to iPhones users wouldn't get the seamless experience they might hope for. They'd find a lack of compatible terminals in shops, bars, or restaurants. You'd be in the game, but there'd be no one to play it with.

Square pegs the hole

It was recently claimed that Apple had ditched the idea of NFC payments while it waits for the banking business to get behind a standard payment processing system. The company began selling Jack Dorsey's Square system in its retail stores soon after that rumor leaked.

A recent design patent for Apple revealed an e-Wallet icon that could feature on a future version of the iPhone.

What is Square
Square offers a plastic card reader and accompanying software which clips to an iPhone, iPad or Android device. Use it and you can take credit card payments for a 2.75 percent fee on each exchange. More information. In Q1, Square did $66 million in payment volume in Q1 2011 and expects to process nearly $200 million in the current quarter.

Is there a connection? Does Square's system use NFC? No. It uses a card reader which looks at the magnetic strip on a credit card. It isn't impossible to imagine it being upgraded to make use of an NFC chip if there were one in the host device. Then the card swipe would be replaced by a wave of another, payment-providing device.

Is Visa interested?
Yes. Barclaycard and Barclays Bank cardholders in the UK last year made over a million contactless transactions, 150,000 of those in September.

Visa Europe launched the first commercial deployment of its own iPhone payments App in January this year.

A survey conducted by Visa Europe in the UK, Italy, Poland and Turkey found 87% of iPhone users would be willing to attach an add-on to their phone in order to make mobile payments, reports NearField Communications World. Now Visa and Square can work together to provide this solution internationally. Square currently only supports US payments.

In December mobile money solutions provider Monitise joined up with NFC software developer ViVOtech -- itself once subject to Apple takeover rumors -- to develop mobile phone payment services for US banks. Monitise is developing NFC-based payment systems worldwide, with Orange and leading banks.

Square is now processing $1 million in payments each day while another 100,000 merchants sign up for the service each month. Visa's move into Square's business reflects growing interest in mobile payments -- and comes as other contenders move into the frame, says FinExtra.

Visa gets behind Square

Speaking to Forbes, Keith Rabois, COO of Square said the investment isn't about money, but about clout.

"They've been converting paper transactions to electronic transactions successfully for over 40 years, both in retail environments and on the internet," said Rabois. "They have unparalleled expertise."

Support from Visa will help Square reach further and bring its credit card payments for the masses approach to the mass market.

NFC is on the way -- Angry Birds maker, Rovio even intends deploying NFC chips in Angry Birds plush toys. And the GSMA last month issued a statement outlining a commitment by leading global mobile network operators to launch commercial services in 2012.

"The operator community is focused on driving the standardized deployment of mobile NFC, using the SIM as the secure element to provide authentication, security and portability," the announcement said.

Square + Apple?

Once again, however, the devil is in the terminal. So how does Square's link-up with Visa help Apple bring such systems to market? The App.

Once both the payment device and processing terminal (in this case also an iOS or Android device) are both equipped with NFC, and assuming Square's software can be upgraded to understand data from the NFC-based exchange, then we're looking at an end-to-end solution to mobile payments. And Apple still has wriggle room to develop alternative payment systems if it prefers.

This is because Square's low-cost approach to creating Apple-compatible terminals means that, in future, iPhone users should be able to make payments, while merchants won't have to spend a fortune on the payment processing equipment. That Visa is now involved in Square's should represent a major step toward standardizing on a payment system -- open to question is if NFC will come for the ride.

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In other news:

Digitimes claims three Foxconn employees have been charged with leaking the design of the iPad 2 to accessory manufacturers ahead of the device's launch.

Apple has slipped to fourth place in global Q1 PC shipments if the iPad is included in the figures -- that sounds bad until you look at Apple's year-on-year growth, 187.9 percent.

Apple has reportedly forked out an eye-watering $4.5 million to purchase the iCloud.com domain. This suggests some improvements to MobileMe.