How Apple is positioning itself to reinvent mobile payments

The real story behind the new iPhone and the Touch ID sensor.

Michael Bloch
Oct 3, 2013 · 3 min read

Mobile payments have been discussed for years now but have failed to materialize in any real way. I am specifically referring to the ability to pay in any physical store using a mobile phone in a secure and seamless way. The NFC standard has been around for years now but has failed to gain meaningful status and was never adopted by Apple.

In a very low-key way, Apple is positioning itself in the mobile payment market through three assets

  1. Support for the Bluetooth Low Energy standard enables the owner of an iPhone to be identified (if she allows it) when walking into a store. Low energy Bluetooth is like GPS but uses a lot less battery, is much more precise and can be used indoors (e.g., in shops or shopping malls)
  2. Apple’s database of 500+ million credit card numbers linked to specific phones’ owners enables them to smooth out the payment process by not entering/sharing credit card numbers with anyone
  3. The TouchID enables code-free fast seamless authentication of any transaction

You walk in a shop, pick up an object, walk to the cashier who rings the object, sees you appear on his cash register (since your phone “signed you in” when you walked into the shop) and sends your phone a request for payment. You pick up your phone, identify yourself with your thumbprint and voila, you are on your way. At no time did you have to disclose your credit card number, adding to the security of the system.

Apple is not alone in that field. The Bluetooth Low Energy standard is supported by many other device makers and BLE beacons are becoming available from third-party manufacturers (e.g., Estimote). Where Apple rules however is in their ability to link all these elements seamlessly and deliver smooth and secure user experiences.

Expect to see a rush of activity in this space in the months to come. Paypal for instance is taking active steps to extend their reach to physical payments as the trusted third-party interfacing between merchants, credit card companies, banks and consumers. See for instance their recent Beacon announcement and the upgrade to their mobile application.

, about 6 trillion dollars globally (that is 6000 billion dollars !). Within this market, mobile payments is smaller segment but is significant because of its growth. By 2017, Forrester predicts mobile payments will reach $90 billion in the US alone, a 48% compound growth rate over five years.

We might just have reached the tipping point of really usable and secure mobile payments for everyone. And Apple is well positioned to capture a significant part of the value created in that space. So much for those who criticize its innovation potential.

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Michael Bloch’s thoughts on technology, innovation and strategy

    Michael Bloch

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    Senior Partner at McKinsey, focused on technology, business transformation and innovation. Opinions are mine.

    Tech Growth

    Michael Bloch’s thoughts on technology, innovation and strategy