Look Out eBay: Munster Sees Digital Wallet in Apple’s Back Pocket
Will Apple’s (NASDAQ:AAPL) next-generation iPhone make the Cupertino-based company a major player in the burgeoning mobile payments service market? Piper Jaffray analyst Gene Munster believes that the upcoming iPhone 6 will include Near Field Communications (NFC) technology that will allow Apple to make the device a digital wallet, or e-wallet.
While it wasn’t clear if Munster had new evidence to support his claim, his prediction of an NFC-enabled iPhone aligns with a recent report from BrightWire. According to BrightWire’s unnamed sources, Apple has already reached a deal with China UnionPay that will allow Apple users to make mobile payments with their iPhones through the device’s NFC chip. Munster also noted that the iPhone maker’s sizeable iTunes user base puts the company in a good position to create a digital wallet.
“We believe that Apple, with its nearly 800m active iTunes accounts (as of April 2014), has a valuable asset in terms of credit cards linked to its services,” wrote Munster in a research note obtained by StreetInsider. During Apple’s last quarterly earnings call, CEO Tim Cook noted that most of those 800 million iTunes accounts are linked to credit cards. Assuming that “most” means at least 51 percent, it can be safely assumed that Apple has over 400 million credit cards on file.
For this reason, Munster believes that Apple could one day challenge eBay’s (NASDAQ:EBAY) PayPal as a major player in the digital wallet market. On the other hand, Munster also believes that Apple may have trouble competing against more established mobile payments service providers like eBay.
“However, while this brings a formidable competitor into the digital wallet space, PayPal is already competing with a number of players including Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Visa (NYSE:V) and MasterCard (NYSE:MA),” wrote Munster according to StreetInsider. “In addition, PayPal has the advantage of having already rolled out a product, which is now available in about 2m locations, up from 250k last year. Apple will also have to build its retail or terminal partnerships from zero today.”
However, it should be noted that many of the current digital wallet options have failed to catch on with most consumers. Although PayPal redesigned its mobile payments app last year, reviewers at The Verge noted that it is still far from intuitive. On the other hand, Apple is renowned for creating simple, intuitive apps that are easy to use. In this sense, the digital wallet or mobile payments service market may be ripe for disruption from a company such as Apple.
While it remains to be seen if Apple will enter the digital wallet market, the iPhone maker’s recently unveiled Touch ID application programming interface (API) will likely help to boost the overall user base for mobile payments services. The new Touch ID API allows third-party apps to take advantage of Apple’s biometric authentication system and could increase the number of mobile payments service users by eliminating the inconvenience of alphanumeric passcodes. Some industry watchers have speculated that the opening up of Touch ID to third-party apps is a signal that Apple is about to unveil its own mobile payments service. In the meantime, Munster appears to be hedging his bets by maintaining an “Overweight” rating on both Apple and eBay.
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