Apple (AAPL) Needs to Move into Payments

With over 575 million credit card accounts, it makes sense that Apple (NASDAQ: AAPL) moves into the payment space. Making such a move would be the best way to attract and retain users and stem the tide of smartphones becoming a commodity, according to analysts at Barclays.

"While we believe margins should still come under pressure over time, we have long believed the payment trend could benefit Apple in particular and enable it to potentially drive incremental revenue streams," the Barclays technology team said. "With 575+ million credit card accounts for the App store, we believe that Apple has the user base to support a payments solution."

It was added, "We currently estimate that the value of an App store user is about $30 per year, but this number doesn't seem to be growing on a per user basis given the proliferation of free music services and apps that don’t require users to create large libraries of content. Payments could help to reverse or even grow these "sticky" types of revenue streams in the long run and help stem the inevitable tide of margin erosion as subsidies have peaked."

The Barclays teams notes that Apple has some premium assets in security which could be used in payments, including finger print technology from AuthenTec. The 2012 acquisition "provides Apple the IP around mobile payments within the iPhone based on NFC technologies," they said. "This solution can securely identify users for a broader range of mobile services that could benefit from authentication. In our opinion, owning the patents around these solutions helps Apple seamlessly integrate the technology into its device hardware, iOS and an iTunes back-end – and get ahead of the competition. We also envision secure identification with NFC helping drive iPhone usage as a marketing/coupon tool when at stores, a home remote control for appliances and a host of other 3rd party applications."

A payment system from Apple with the ability to push promotions to customers could attract more users and foster more loyalty versus Android platforms, the analysts note. " This type of innovation could reignite interest from developers as well given Android has leveled the playing field a bit," he said. " We believe these services are needed to keep Apple’s ecosystem ahead of the pack and to attract and retain more users and warrant its extremely high prices. Apple needs to prove that its platform is what makes it much different from fallen angels like RIM (email prowess only), Nokia (manufacturing/scale) and Motorola (now owned by Google) – and more like Facebook, Amazon or Google."

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