The Wall Street Journal last week offered an enlightening look at Apple’s “go-slow approach to mobile payments,” describing how the company is biding its time before it jumps in. Rather than developing an ambitious mobile wallet of its own, the company is preparing to launch Passbook, a modest digital ticketing and coupon app that won’t support actual transactions at the point of sale.
The strategy contrasts starkly with initiatives from Google, PayPal, mobile carriers and other players, many of whom are scrambling to build a virtual wallet that can replace cash, credit cards, coupons and more. But the promising mobile wallet will continue to struggle to get legs, and Apple’s caution will serve it well because of a few key factors:
- NFC still isn’t ready for primetime
NFC isn’t a must-have for mobile payments – PayPal’s app, for instance, doesn’t rely on it – but some important other initiatives depend on it. But there’s still very little penetration of NFC-equipped handsets in the U.S., as my colleague Kevin Fitchard reported a few months ago, and penetration of NFC point-of-sale terminals among U.S. retailers is less than 5 percent. That lack of infrastructure might be killing Google Wallet, as CNET’s Marguerite Reardon recently speculated, and it doesn’t bode well for the NFC-based Isis initiative, which is supported by carriers and will come to market this summer. And Apple is right to question whether NFC can support the kind of security that will be crucial to the success of any payment offering. NFC may yet become the standard for mobile payments, but it will be years before that happens.
- The ecosystems are in disarray
As Reardon’s article points out, one of the problems with NFC is the question of who controls the user experience: The handset manufacturer, the retailer, the carrier and the payment provider all want to own the customer. But that problem isn’t exclusive to NFC, and it will take years for ecosystems and business models to mature.
Similarly, the surfeit of “solutions” coming to market is sure to slow overall adoption, as I’ve written before. A consortium of retailers is working to join the fray with its own offering, Square is moving into hands-free payments, and Paydiant (which announced a $12 million funding round this week) is targeting banks and retailers with a white-label solution, to name just a few other players. But we won’t see many winners in this space because consumers simply won’t use a half-dozen payment apps, firing up the right one based on what they’re buying and where. Starbucks’ success notwithstanding, the overall industry won’t enjoy mass-market traction until we see two or three solutions emerge – and maybe even just one.
- Everybody wants Apple’s customers
The average iPhone owner makes more and spends more than his Android-toting counterpart, according to statistics compiled late last year. Indeed, a 2011 eMarketer study found that 45 percent of U.S. iPhone users earned more than $100,000 annually. IPhone owners are more likely to travel and live in a city, and they’re far more inclined to be early adopters. They’re a demographic sweet spot for the advertisers and retailers who ultimately will drive mobile payments. So Apple won’t need to capitulate to anyone when it finally supports mobile payments; instead, it can be sure other key players will come to it.
Mobile payments are an eye-catching novelty, but there’s little reason to believe consumers see any real value in a mobile wallet – at least not yet. Apple can gradually build out Passbook as a foundation for future payment services as it watches the market develop and learns lessons from more eager players. Even if it’s slow to come to market, Apple is in no danger of being left behind.