Here’s how Apple will attack mobile payments with the iPhone 6 and beyond

Apple Mobile Payments

Ever since Apple purchased AuthenTec in July 2012, people have been speculating about the world’s largest tech company doing something with mobile payments as it seeks to make the most out of its 800 million (and counting) iTunes accounts. With Apple publicly acknowledging mobile payments on an earnings call, it may wind up doing so with future iPhones that include Near Field Communications (NFC), a technology that’s been around for quite some time, but has never really taken off.

In a research note to clients, Morgan Stanley analysts noted that mobile payments represents an enormous opportunity for Apple, as it seeks to boost revenues and improve user experience.

“The company has historically been very good at integrating hardware and software, and we believe it can further differentiate itself and increase/preserve the value of its devices by adding services,” analysts wrote in a note. “Mobile payments can help Apple collect more data on consumers in order to create more relevant and useful recommendations and advertisements, and create additional revenue opportunities for developers and other partners, especially brick-and-mortar retail.”

There’s been a lot of talk recently, mostly related to patent filings, for Apple’s eventual move into mobile payments. In recent years, Apple has publicly dismayed the use case of NFC, with Vice President of Marketing Phil Schiller noting that it didn’t really solve anything. “Passbook does the kinds of things customers need today,” Schiller said when discussing why NFC wasn’t included in the now-discontinued iPhone 5.

However, true to Apple form, the company says one thing publicly, then does something completely else privately as it figures out a way to make the best use case of the technology.

Morgan Stanley notes that “recent news on partnerships, potential licenses, and patent filings suggest NFC could be reaching that inflection point,” with NXP Semiconductor playing a role in Apple’s mobile payments ecosystem. The two companies already have a working agreement, with NXP having appeared on Apple’s supplier list in 2012. Morgan Stanley notes NXP is believed to have signed a licensing agreement in the fourth-quarter of last year, believed to be Apple, related to its emerging ID business.

Given Apple’s dominance in the high-end of the smartphone market (~50% according to Morgan Stanley), it could really drive NFC adoption, and thus begin the mobile payments boom everyone has been waiting for. Not only would it boost the amount of people with NFC capabilities, by some 170 million units, it could really make headwaves for the company in terms of new opportunities, something CEO Tim Cook talked about on Apple’s fiscal first-quarter earnings call.

“The mobile payments area in general is one that we’ve been intrigued with, and that was one of the thoughts behind Touch ID,” Cook said on the call. “But we’re not limiting ourselves just to that. So I don’t have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity on the platform.”

With Apple’s Worldwide Developer Conference just a few weeks away, all eyes will be on whether there is some incorporation of NFC capabilities into iOS 8, Apple’s next mobile operating system, and how it would work with upcoming hardware, including the iPhone and iPad refreshes, as well as the upcoming iWatch. Morgan Stanley expects Apple to use a standalone NFC controller, “given the current technical challenges faced by OEMs with antennas and NFC.”

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