Mobile payments: Apple faces carrier hurdles if Passbook holds the key

Apple [AAPL] may do it; Google is trying to do it; PayPal attempts it, but it's the mobile carriers who may be prepared to deliver it: the capacity to pay for things using your mobile is emerging as an inflection point as carriers seek to take a larger slice of OTT revenue while generating new cash flow for themselves.

Mobile payments and passbook

[ABOVE: Recall when Passbook was a "key feature" in iOS6?Yet it wasn't mentioned at WWDC. Was this plan fired with Forstall, or is it simmering in the background? And will carriers love it, or loathe it?]

Billing systems

If you think about it, carriers are ideally placed to put together mobile payment systems: they have existing billing infrastructures capable of handling small charges and small payments; they are investing in intelligent network infrastructure that's becoming more savvy to the process of charging and accepting payments and implementing service changes in real-time; while Big Data analysis enables ever more efficient prediction of a mobile user's movements, choices and future need.

This is driving some carriers to explore new relationships with third party suppliers, mainly (at present) in the content provision space. This makes perfect sense, of course: carriers know that services such as iTunes or Google Play are grabbing the cash from the digital content exchanges their networks are enabling. Carriers are being cast into the role of "dumb pipes", they don't want to be dumb because they know that future growth and business success demand they broaden their income streams.

Carriers have attempted to launch their own content provision services, but these have failed to gain much traction. Meanwhile hardware firms, principally Apple but also including (albeit to a lesser extent) its competitors, are grabbing the lion's share of the mobile digital content pie.

Negative feelings about carriers, questionable service quality and limited content offerings have dampened enthusiasm for those services carriers have made available.

It is perhaps in recognition of this carriers have begun exploring partnership models with services such as Netflix. Under these deals the content provider leverages the strength of their brand to offer popular content download/streaming services via carrier networks, reaching service quality and revenue sharing deals with those self-same carriers as they do. Everyone makes money.

Partnerships

What's important to understand is that this is only the tip of this iceberg. Industry insiders tell me carriers are looking to transform their existing payment infrastructure into a service to be made available to third parties on a wider basis.

There's lots of potential here: online shopping, high street shopping, digital and physical content, service and goods provision could conceivably all be made available via your phone, with payments taken through your existing arrangement with your network provider. (This is already happening to an extent, but this is not universal and the offering is not yet broad).

The payment mechanism likely involves near immediate charges to the account associated with your phone bill if you happen to be a post paid customer, and a charge levied against your balance if you're a pre-paid person. You get the convenience of making payments using your phone.

However, carriers aren't the only players in town in this attempt. Google and others have already attempted to deliver mobile payment infrastructure, Apple is expected to do so, and the big banks and credit card firms are also attempting to deploy a successful ecosystem of this kind. All have so far failed to make decent headway, at least in my opinion.

Apple is also expected to deliver mobile payments at some future point. While this system may exploit the fingerprint sensor anticipated to debut in next week's iPhone on top of a payment system supported by iTunes, the company may face a few challenges convincing carriers to support its service.

Carriers will want a piece of the action.

They may not want much, but they will want some. I anticipate that at this stage in the evolution within this sector, Apple will resist reaching such deals. Instead it will attempt to create its own payment system accessed via next-gen iPhones which rides on the carrier network (so-called OTT services).

Profits

In the event Apple fails to reach some kind of revenue sharing deal with its carriers, those carriers will be likely to lend further support to the Android ecosystem because that platform makes it possible for them to ensure their own payment systems -- or third party services which are based upon their own payment and billing systems -- are accessible through these devices by default. (They'll put an app in the hardware, as they can within this ecosystem).

Apple has another choice, of course: that of finally ceding to carrier demands it shares some of its digital content sales revenue with them. I consider this unlikely however as Apple also has its own fast and immediate payment and billing system in the form of iTunes.

This makes me think that when Apple does introduce its next-gen iPhones it will be putting all its might behind boosting market share of these devices: not just because it wants market share, but that in order to achieve cooperation from carriers it knows it needs to be able to deliver a substantial marketshare.

That's Apple: the other big thing is that as mobile payments broaden in scope and public reluctance to engage with such services thaws, the banks and payment card companies will face fresh challenge at a time in which public confidence in their services is pretty much at an all time low.

This appears to be the environment in which Apple and others will attempt to broaden their business across the next 12-24 months.

It will be interesting to see what happens, but even more interesting to see just how much (or how little) trust the general public may hold for these arriviste mobile payment services. Is cash still king? Will users resist such services because they value their privacy? It may well be that mobile payments are, as Phil Schiller once put it when discussing NFC: "…not…the solution to any current problem."

However, rest assured, your carriers and at least some of your hardware manufacturers are hoping they can convince you that mobile payments are a solution to a convenience problem -- mainly because they want to make some money when you spend money. This may be a turn-off for most consumers in economies in which credit and charge cards may already be widely deployed -- but in the developing economies, mass market mobile payment solutions could emerge to be a key driver to the mobile industry, as credit and payment cards are not widely used in some of these regions.

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