When Apple chief executive Tim Cook hints at plans to replace your wallet with a mobile payment system, he talks about music.
"iTunes software and services revenue continue to grow at a double-digit rate, thanks to an incredible ecosystem and our very large, loyal and engaged customer base," he said on a conference call with analysts last week after releasing Apple's strong quarterly earnings. "With its strong momentum in growing profitability, iTunes is a very important driver of our business not only here in the United States, but around the world. We now have an almost 800 million iTunes accounts, most of these with credit cards. This is a staggering number."
When you read between the lines, Mr. Cook is saying a number of important things:
- Apple has close to 800 million credit card numbers, a “staggering number.” There are only 330 million people in the United States. A very significant number of those do not have a credit card because they are too young or too old. So Apple probably has a great majority of the US cardholders in its databases, in addition to a substantial number of the cardholders in the developed world.
- The revenue from iTunes, where the credit cards are used, continues to grow at a double-digit rate. People are using Apple iTunes more and becoming very comfortable with it.
- Cook thinks about iTunes as an ecosystem. Once somebody enters the Apple ecosystem, they usually don’t leave. Apple looks to enhance that ecosystem with a product like the iPhone, which can become your wallet.
Apple has been slowly laying the foundation to become the leader of e-commerce and mobile payments, and all the pieces are just about in place:
First, get everybody's credit card numbers in a database via a cool product that everybody wants and uses: iTunes. Done.
Second, create a device that people carry with them at all times that will hold these credit card numbers: iPhone. Done.
Third, create a very secure system so if a thief stole an iPhone, he would not be able to use the phone or the credit card numbers in it, making it much more secure than a regular leather wallet with credit cards. Use something like fingerprints that a thief couldn't reproduce or fake: TouchID on the iPhone 5S. Done.
Fourth, put an NFC (near field communication) chip in the phone so the consumer simply verifies his ID with his fingerprint and then waves the iPhone at the register. The NFC chip then sends the encoded card number. Almost done.
Some industry analysts believe the iPhone 6 may have an NFC chip. After that, it's simply a matter of getting merchants to install NFC-enabled registers.
When the Wall Street Journal asked about mobile payments, Cook responded: “I think it’s a really interesting area. We have almost 800 million iTunes accounts and the majority of those have credit cards behind them. We already have people using Touch ID to buy things across our store, so it’s an area of interest to us. And it’s an area where nobody has figured it out yet. I realize that there are some companies playing in it, but you still have a wallet in your back pocket and I do, too, which probably means it hasn’t been figured out just yet.” That wallet may not be in your back pocket for much longer.