Apple Inc. (NASDAQ:AAPL) showed part of its plan for Apple Pay in a new patent filing published by the US Patent and Trademark Office on Thursday. The filing shows a system that would let users use the payment service on a mobile device, and it may be a key part of the firm’s strategy with the iPhone 7 and the iPhone Watch.
Apple has been slowly rolling out Apple Pay and getting more and more merchants to accept the service as a form of payment. Bringing new features to the iPhone 7 in the form of software rather than hardware appears to be a big theme at Apple lately. Earlier this week the firm launched Apple Music, a streaming service for its mobile devices.
Apple wants you to pay your friends
The new Apple patent will use one of a number of wireless standards in order to let you pay your friends simply from device to device. Using Wi-Fi, Blutooth, or NFC will allow users to send cash to a device close to them and authenticate it with their fingerprint through TouchID, or through a passcode.
The TouchID sensor, which finds a home in the iPhone 5s and iPhone 6, is becoming a bigger and bigger part of the way in which Apple deals with user data, and it’s sure to become even more important in the iPhone 7.
With the expansion of Apple Pay to personal payment, Tim Cook and his team will be looking for more and more users to go straight to the service rather than an online banking app in order to pay friends back.
Adding software to sell the iPhone 7
From what we know of the iPhone 7, and there’s a lot of concrete info out there after a number of leaks, Apple is going to put just as much effort into the software side of the device as it does into the hardware side.
While features like Force Touch, which is set to debut in the iPhone 7 according to KGI securities analyst Ming Chi-Kuo, are going to put the iPhone 7 ahead of the rest of the smart phone world, it may be services like Apple Pay that really sell the device for the firm.
The ecosystem 2.0 approach, which bullish Cantor Fitzgerald analyst Brian White calls “Planet Apple” will focus on building out services on Apple mobile devices. Those services will only work on Apple mobile devices and they’ll give users even more reason to become “Switchers” or to stay loyal to the firm’s hardware.
Apple Pay will continue to be a bigger and bigger part of that, but before it can be a big hit on a device like the iPhone 7, the firm’s sales team need to work on getting more and more merchants to accept it. The firm hasn’t had all that much trouble convincing large chains to get in on Apple Pay, and the number of firms that take an iPhone in lieu of payment is quickly moving upward.
Apple Pay comes to more merchants
If Apple wants to make its wallet a good enough feature to buy an iPhone for, the firm must make its payment service work everywhere. If Pay is to become appealing, users shouldn’t have to worry whether or not they’ll be able to use their phone to pay when they walk into a store.
The Apple Pay rollout in the UK, which is going to come some time this month, will be the biggest test yet for the firm’s plans. In the US the Cupertino firm managed to start off small and the number of merchants that will accept Apple pay only began to explode in 2015. In the UK the firm will try to make the service truly useful from the start.
Apple says that its payment service will be available at more UK shops at launch than it was at places in US when it first arrived. Boots, Starbucks, McDonald’s, Subway and Liberty are all on the list as are British supermarkets Waitrose, Lidl and Marks and Spencer.
That will give the firm good reception in the retail space, the convenience food space and support from Transport for London will allow users to pay for the firm’s metro transport systems with the service.
The UK launch will be a major test for Apple. If the firm is able to spur mass adoption of its payment system in the country, it may be able to convince members of the Merchant Customer Exchange, a consortium that’s trying to keep Apple out of shops in the US, to switch sides and accept the iPhone 7 as a form of payment.
Apple is not a bank
Apple is not going to make all that much money from Pay because the company is not a bank, and each transfer still needs quite a lot of work in the background from the financial world. As Apple is trying to sell the service as a reason to buy into the firm’s products, at least according to Mr. White of Cantor Fitzgerald, that doesn’t pose a problem for the time being.
That means that Apple simply can’t just jump into a country and start its payment service by itself, it needs the help of banks in order to put together a payment package that will actually work. Payments are notoriously complex beyond the Verifone terminal, and Apple has shunned the complexity of dealing with most of that by itself.
That doesn’t mean it will keep away from that stuff forever, and Apple may be ready to do something that could really alter the way that payments work. It doesn’t need to happen overnight, but Apple really could create its own bank and change the way consumer finance works.
The iPhone 7 could become a bank
Banking is expensive because it is so complex. In order to cover the costs involved, banks charge interest rates on loans. With the iPhone 7 at the center of a bank, Apple wouldn’t have to give out loans in order to subsume most of the uses of today’s high street banks.
Tim Cook and co. likely couldn’t do this on their own, of course, but with the help of some Wall Street banks it could navigate a lot of the legal grief involved in holding money for consumers. Ben Lovejoy over at 9to5Mac wrote a great piece on June 22 on why he thinks Apple is set to become a bank.
Banks like Goldman Sachs and Morgan Stanley have no high street arm, and might be willing to partner with Apple in order to hurt rivals like Bank of America and JPMorgan Chase.
Relying on the service to sell the firm’s devices, combined with a merchant charge on each purchase, could be enough to pay for a bank that doesn’t give out credit. Apple could then have the largest cash reserves in the world, something it’s been aiming to do for quite a while. What it would choose to do with them isn’t clear.
Apple Pay has a huge amount of road to run, and the minds behind Apple are always coming up with new ways to grow. Apple may not want to become a bank, but the fact that it has a clear path toward becoming one should, by itself, give investors some pause about the potential of the iPhone 7.