How an Apple iWallet might work

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Reports suggest Apple could unveil its own mobile-payments system and an NFC-equipped iPhone 6 at its September 9 event. If so, how would an Apple iWallet actually play out?

The iPhone’s Passbook app was a small step by Apple into the mobile-payments world.James Martin/CNET

Will this be the year that Apple fully dives into the mobile-payments market? JP Morgan analyst Rod Hall believes so and suggests three different scenarios for how Apple might run such a system.

Speculation has run rampant for years over when Apple might introduce its own form of mobile payments that would allow people to pay for goods and services at checkout via their iPhone. The company took its first baby steps in 2012 with its Passbook app but hasn’t done much since then to expand the feature into a true mobile-payments system. Paying for items on the go through your smartphone is a technology that already exists — you can tap an NFC-enabled Samsung Galaxy S5at point-of-sale terminals found at many Walgreen drugstores — but it has yet to truly take off among consumers. Apple’s entry could provide just the boost the market needs to move forward.

In an investors note released on Friday, Hall said he believes there’s a “high probability” that Apple will announce a mobile-payment capability alongside the expected iPhone 6 at next week’s launch event on September 9. If true, the analyst sees three scenarios: 1) Apple would allow consumers to carry virtual versions of credit cards on their iOS devices; 2) Apple would provide a true merchant payment system via an iPhone with near-field communication, or NFC; 3) Apple would become an actual credit card issuer.

Among the three options, Hall sees the first one as the most likely.

“We expect Apple to start small by enabling iOS device users to carry virtual representations of select credit cards on their devices (possibly in Passbook),” the analyst said. “In return for this we would expect Apple to take a small transaction fee (we assume 1 cent) every time a virtual credit card is used. Note that we do not expect this to include debit cards initially due to more stringent regulation and the fact that a debit card is directly tied to funds in a bank account.”

And what of the other two scenarios?

Apple could potentially offer its own merchant payment system if it finally adds NFC to the iPhone. The financial benefit to Apple would be more substantial than that seen in the first scenario. However, Hall believes the “complexity of directly interacting with merchants seems outside of Apple’s wheelhouse.”

And what of the idea that Apple could become a credit card issuer? In this scenario, the company would have to take on the risk of managing credit cards or require users to preload money onto their cards. According to Hall, “neither option seems particularly likely to us.”

Apple declined to comment on Hall’s note.


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