Apple Inc. (AAPL) is rumored to launch the much anticipated Apple Pay on Oct 18, 2014. The new mobile payment system will allow iPhone 6 and 6 plus users to pay bills through Apple’s Touch ID application at any wireless pay terminal.
The Touch ID functions through finger print sensors or a one-time password for each transaction along with device-only account number and the near-field communication (NFC) chip. Dutch chipmaker, NXP Semiconductors NV, is supplying the NFC chips to enable iPhone users to pay through touch.
NFC refers to a short-range high frequency wireless communication technology that allows the exchange of data between devices. Apple Pay is supposed to be more secure than the existing payment systems as it will not store any data related to the transactions made via the system.
Currently, Apple Pay will be available at selected retailers like Walgreen’s, Bloomingdale's, Macy's, McDonald's, Staples and Whole Foods. Banks including JPMorgan Chase, Bank of America Corp and Citigroup have also agreed to integrate their cards into the system. Major payment networks like American Express, Visa (V) and MasterCard will also support Apple Pay.
Apple announced Apple Pay along with iPhone 6 and iPhone 6 plus in an event held on Sep 9. The iPhone maker set a new record after it sold more than 10 million units of the new iPhone 6 and 6 plus handsets in the very first weekend. The company is set to host another event on Oct 16, where it is expected to announce new iPads and details of Apple Pay.
Apple’s new mobile payments system will be a befitting reply to rival Google’s (GOOGL) Wallet, wireless carrier-backed Isis and eBay’s (EBAY) PayPal and help it to enhance its market share.
However, many retailers do not have the costly point-of-sale systems at their outlets, which will make them incapable of carrying out such a transaction. Hence, for the time being, many retailers may continue to favor SMS or WAP-based payment systems instead of NFC, which will hinder the smooth adoption of Apple Pay.
Moreover, the number of retailers and banks supporting Apple Pay is not expansive. We believe that if Apple intends to create a truly comprehensive substitute for traditional payment systems, it will have to tie up with more retailers and banks in the near future.
Currently, Apple has a Zacks Rank #2 (Buy).
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