Apple Airdrops More Clues about Its Payments Aspirations (June 2013)

By Bill Grabarek, Senior Editor 

Reading between the lines of announcements from Apple Inc. to anticipate the technology titan’s next moves not only keeps analysts busy and consumers guessing, it has spawned entire Websites devoted to scrutinizing everything the company says and does. This isn’t to imply Apple doesn’t excel at effective self-promotion, but the company can be tight-lipped about certain topics. And, with the launch of Passbook being an exception, Apple has been notably hush-hush about its mobile payments strategy.

Recent moves, however, including a new app announced during Apple’s annual Worldwide Developers Conference last week in San Francisco, send clear signals of the company’s intentions with respect to payments and e-commerce, according to industry experts.

“Apple has clearly shown an interest in payments for quite some time and is currently one of the largest mobile payments players in the world through iTunes,” Rick Oglesby, Aite Group senior analyst, tells Paybefore. “[The company’s actions] surely indicate that, at some point, Apple is planning to expand its payments capabilities beyond iTunes and its own retail locations. The big question is when?”

More than Meets the Eye

New to Apple’s latest iteration of its mobile operating system, iOS 7, is AirDrop, which enables users of Apple mobile devices to share photos, videos, contacts and coupons, among other forms of data, by tapping the “share” button on the app, according to a company announcement last week. The encrypted data is sent using Wi-Fi and Bluetooth technology.

Though the announcement specifically mentions sharing photos, videos and contacts, AirDrop has more far-reaching applications, according to Oglesby.

“AirDrop is probably the biggest step in the direction of payment/wallet capabilities for broader use that Apple has completed so far. By integrating AirDrop into Passbook and opening the API up to POS developers, [Apple] can deploy a wallet that can pass any type of information to any type of device in a secure way,” Oglesby says.

“If consumer takeup of AirDrop is strong in the coming 12 to 18 months, it could serve as a building block for a larger-scale payments deployment that would be cloud-based and involve direct peer-to-peer communication between the POS and digital wallet infrastructure,” he explains. What’s more, Oglesby says promotions through advertising on Apple Maps and iTunes easily can be dropped into Passbook and redeemed via AirDrop using a simple payment interface.

Patently Preparing for Payments

Just days before last week’s conference, the U.S. Patent and Trademark Office granted Apple another patent that could be a sign of what the tech giant is planning for mobile payments. The patent relates to a “method and system for managing credits via a mobile device.”

“This patent allows for coupons and loyalty redemption to be used for payment of an order at the POS through a mobile phone. [The patent] can be used to enable Apple to process payment cards, redeem loyalty points or use coupons—all over the same system,” says David W. Schropfer, head of mobile commerce for advisory firm the Luciano Group. Revenue from mobile commerce for new entrants, such as Apple, will come from marketing programs, not the payments ecosystem, he adds.

The patent is the latest of several Apple moves involving m-commerce, including a patent filing for its EasyPay mobile payment technology and the acquisition of AuthenTec Inc., a fingerprint sensor technology company, and subsequent patent filing for a biometric application that could be used to authenticate payments.

Most intriguing to George Peabody, senior director at payments consultancy Glenbrook Partners LLC, is Apple’s interest in biometrics, joining other handset manufacturers as they explore equipping mobile devices with fingerprint readers.

The handset in tandem with a built-in fingerprint reader can be used for multifactor authentication—a capability that provides stiffer security than PINs or passwords for myriad applications, such as mobile banking and payments, he says. “With biometrics, we end up with security as strong—if not stronger—than card-present transactions.”

NFC? Not for Now

Meanwhile, the release of AirDrop suggests it’s less likely that Apple will heavily invest in near field communication (NFC) capabilities for upcoming iPhone models, according to Oglesby.

Apple appears to be “stepping closer and closer to a broad scale, cloud-based payments deployment,” he continues. “Authentication method incorporation will be a key component of a successful payments deployment and they have some patents and acquired assets that will lend very well to that.”

Some technology wonks and consumers, alike, have knocked Apple for not embracing NFC. However, Paybefore Award-winning CashStar is quick to come to Apple’s defense.

“Those who have pooh-poohed Apple’s lack of support for NFC as making Passbook non-transactional are plain wrong,” Gene Cornfield, CashStar vice president of marketing, tells Paybefore. The digital gifting provider has enabled its retail clients’ eGift Cards to be added to Passbook ever since Apple launched the app last fall.

 “Consumers have put millions of dollars of eGift Cards in Passbook and are paying today at an increasing number of stores and restaurants on their mobile devices,” he says. “Currently more than 50 of CashStar’s nearly 300 retail brands . . . support Passbook, and we’ve seen the overall percentage of eGifts added to Passbook doubling every two to three months as overall adoption of iOS 6 has grown.”

Glenbrook’s Peabody suggests that Apple might not get involved with the payments business as directly as many believe.

“We all recognize Apple has a lot of [payments] components that look promising,” he says. “[Apple] certainly has been interested in payments from a patent point of view, but it’s not necessarily an easy place to add value, and there’s not a lot of profit margin there unless you’re in a position to entirely disrupt the payments ecosystem and that’s really hard to do.”

Apple will continue to observe NFC usage and how quickly it expands—and might even support the technology at some point, according to Peabody. “But Apple will make its money in ways around payment enablement rather than being in the payments business. Maybe it will be on the commerce side, such as advertising and performance-based marketing, rather than in the payment itself.”