Now that online banking, debit, and credit cards are commonplace, the next great transition is starting to emerge — and the proliferation of connected devices is leading the charge.
Last week, Starbucks (NASDAQ:SBUX) released a software application for Apple’s (NASDAQ:AAPL) iPod Touch and iPhone, as well as Research in Motion’s (NASDAQ:RIMM) BlackBerry smartphones. It transforms those handhelds into payment devices — just start the app and have your barista scan the screen.
Starbucks has fired the first shots, but it will be mobile phone makers themselves that lead the battle to define mobile payments. Richard Doherty, director of consulting firm Envisioneering Group, told Bloomberg on Tuesday that he’s spoken with engineers that confirmed that Apple’s next-generation of tablet PCs and smartphones will include near-field communication — wireless transmitters that can automatically communicate with each other within 4 inches.
This means that the iPhone 5 and iPad 2, both expected to be released by July, can be used for mobile payments without even needing a secondary app like the one from Starbucks to fuel the transaction.
Apple patents revealed last summer already describe how the new technology will be put to use. “Products+,” a built-in software feature, will leverage the NFC chip to automatically transfer product reviews and user manuals about items before you purchase them in a store. Decide you like what you see, wave your iPhone in front of the register, and the transaction is over.
Apple, of course, will take a hefty chunk of the payment as well. In the Bloomberg article, Doherty says, “Apple’s service may be able to tap into information already on file, including credit card numbers, iTunes gift card balance, and bank data.” It’s more likely, however, that Apple will require users to fill a digital wallet on the device, similar a Starbucks Card Account.
Could this also lead to Apple creating a secondary virtual currency to be used for both digital and physical goods at retailers?
Social media king Facebook is now mandating that all software developers who make games for its network use Facebook Credits, which are purchased by users through Facebook, guaranteeing that Facebook gets a 30% cut of every digital sale. Microsoft (NASDAQ:MSFT) has also had great success with virtual currency filling a digital wallet; Microsoft Points are bought then used to purchase digital goods on through the Xbox Live gaming network as well as the Zune media store on the Xbox 360 game console and Windows Phone 7 phones.
As smartphones proliferate, mobile payments will become a more and more viable option. Given the potential inherent in using a virtual currency to fill a digital wallet for those mobile payments, companies like Apple, Research in Motion, Microsoft, and Google (NASDAQ:GOOG) will start competing with credit card companies — and each other.
At the time of publication, Anthony John Agnello did not own a position in any of the stocks named here.