Apple's Rumored Payments Watch Faces Heavy Competition

After years of speculation, Apple Inc. may finally launch a contactless mobile payments system with its rumored smartwatch.

Apple will introduce an iWatch with a secure element, Near Field Communication capabilities and support for biometrics, Taiwan-based KGI Securities analyst Ming-Chi Kuo reports in a new research note. Apple has never previously used NFC in its mobile devices, preventing its iPhones from performing NFC payments.

Kuo predicts the iWatch will be available in multiple models and will communicate with the user's iPhone or iPad, according to his Apple 2014 product roadmap and reports from Apple news sites.

Apple has not confirmed plans for an iWatch, but many reports credit Kuo with having a solid track record for Apple predictions. Apple CEO Tim Cook called mobile payments "a big opportunity" during a January earnings call.

The smartwatch market is still extremely new, but it is already crowded with payment-capable applications and devices from fast-moving technology companies.

PayPal launched a smartwatch payment app today for the Samsung Gear watch line. "While we are all too often glued to our mobile phones, there are still times where I wish I didn't have to take out my phone (or my wallet, for that matter) to do things like shop," says Hill Ferguson, PayPal's chief product officer, in a blog post.

The Pebble smartwatch, a simpler device with a black-and-white screen, can now be used to make payments with the LevelUp mobile wallet. And Walt Disney Co. is rapidly expanding its MagicBands, which allow parkgoers make purchases within the Walt Disney World theme parks and resorts.

The number of smartwatches – and the corresponding options for making payments with them – is set to balloon with the recent launch of Android Wear, Google's mobile platform for smartwatches. Numerous smartphone manufacturers, including LG and Motorola, have already committed to developing Android Wear watches.

In Europe, there is also Watch2Pay, a wristwatch with a built-in chip for making contactless payments from a prepaid card account. The company plans to bring its products to the U.S. through a partnership with TransCard.

Apple has already established the foundation for a payment system that it could link to an NFC-equipped watch or phone. Its iCloud Keychain, unveiled last year, lets consumers store storing credit card information across Apple devices.

"My personal view is that Apple has to do something regarding NFC, the world is going in that direction whether we like it or not," says Pradeep Moudgal, director of emerging technologies advisory services for Boston-based Mercator Advisory Group.

NFC wallets used to be constrained by the need for mobile carriers to approve their use. Notably, Google was unable to support contactless Google Wallet payments on Verizon and other networks until Google began using Host Card Emulation, a technology that enables NFC payments without needing access to a phone's secure element.

After Google made this change, Visa and MasterCard voiced their own support for HCE. Apple could use HCE, or it could ignore that option and use QR codes or Bluetooth Low Energy for mobile payments, Moudgal says.

"But when you have 80% of the world going in one direction, does Apple want to be the 20% going the other direction?" Moudgal asks. "Apple has done that in the past, but they never got the market share that Microsoft got with its computers."

Apple's smartwatch efforts are fueled by its 2013 purchase of Oakland, Calif.-based Passif Semiconductor Corp. and its patents.

Kuo's speculates that the iWatch will have "a multitude of biometric sensors" that will allow it to integrate with the iPhone, iPad and Mac. Apple supports biometrics in its iPhone line through the TouchID fingerprint sensor, which is used to unlock the home screen and authenticate App Store payments on the iPhone 5s.

Rumors about an Apple iWatch first surfaced more than a year ago when The New York Times reported the company was developing a smart watch that would include mobile payments.