Apple Navigates a Bumpy Road to Mobile Payments

Apple Inc. has taken its time to establish a potential foothold in payments, never seeming to follow the path set by its rivals and never seeming to indicate just how close it is to the finish line.

Speculation about Apple's potential in mobile payments has become a fixture in the payments industry, even though many of the company's products and patents seem to point to wild and often incompatible approaches to mobile payments. But the company may finally be streamlining its efforts in preparation for its next big move.

Apple has given Jennifer Bailey, a longtime vice president of the company's online stores, the task of building an Apple payments business, according to The Wall Street Journal, which cited anonymous sources.

In addition, Eddy Cue, Apple's head of iTunes and the App Store, is meeting with retail and commerce executives to set the stage for the company's entry into payments, the Journal says. Apple did not respond to inquiries from PaymentsSource and the company did not provide an official statement in the Journal article. Apple will report its first-quarter earnings later today.

"Things are getting clearer with Apple, but putting an executive in place doesn't mean anything is imminent," says Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group. "We've been saying for a while that many of the elements are in place [for mobile commerce], and we've been seeing them do it in the Apple stores."

It is obvious that Apple's intention is to step out of the Apple stores with its payments and commerce technology, but it remains a "question of when," Oglesby adds. "At this point, I would look at it maybe as a 2015 thing."

Apple has long been seen as a potential disruptor in the payments industry, based on its history of upending other technology markets it has entered. Its iTunes and App stores for phones, tablets and desktop computers already hold the payment account details of a significant number of consumers. In June, Apple added iCloud keychain, a system that allows consumers to store payment details securely in the cloud.

However, the company has sometimes stumbled in its efforts to introduce or support payment initiatives.  Notably, Apple this month agreed to refund about $32 million to consumers under a settlement with the Federal Trade Commission, which took issue with the company's earlier method of authenticating purchases of apps.

Apple's Passbook wallet, introduced in Sept. 2012 as a digital wallet that holds other payment apps, launched without an official payment app from Apple. That app came two months later in the form of an e-gift card feature Apple added to its Apple Store mobile shopping app.

And digital gift cards from other companies have had widely-publicized problems. The mobile payments company Square began offering gift cards in December 2012 and canceled the program about half a year later. Starbucks, which has about 10 million consumers using its mobile payments app, had to revise the iPhone version of the app this month after researchers exposed a vulnerability in how it stores passwords.

Apple's devices also aren't built with payments in mind. Its iPhones have never had a Near Field Communication chip, despite the technology supporting mobile wallets on many other manufacturers' handsets. It also does not allow other developers to use the iPhone 5s' fingerprint reader for authentication, even though this could streamline the payments process and improve security for mobile wallet users.

Despite these issues, Apple's technology has clear potential for payments, and many other companies have built mobile payments products on iPhones and iPads before moving to support other devices.

For its part, Apple has long explored payments ideas in patents. Its most recent patent

application calls for using Near Field Communication, Bluetooth and Wi-Fi technology in combination to allow consumers to make secure payments through their smartphones.

In addition, Apple has already established a mobile payment system within its own stores as customers using their Apple Store app can scan bar codes of products to pay for their purchase with their iTunes payment credentials.

Apple's iOS7 operating system also supports Bluetooth Low Energy wireless technology as part of iBeacon, which sends a wireless signal to detect when an iPhone user has entered a store.

Even if Apple isn't talking publicly about its payments plans, it is likely talking to retailers about placing its iBeacon technology and iPad-based point of sale systems in more stores, Oglesby says.

"Apple generally doesn't launch a technology until it is fairly usable, and there is still a chunk of the merchant ecosystem that won't be set up for this," Oglesby says.

Apple may be waiting for other retailers to come to a consensus on how to handle mobile payments. Many major retailers are involved in the Merchant Customer Exchange, an organization that is developing a mobile payment system that could work with retailers' existing mobile apps.

"Apple will be in the door and able to have a conversation with anybody," Oglesby says. "Maybe MCX [Merchant Customer Exchange] is the trigger, because obviously you need some sort of critical mass on the merchant side."