Apple joins digital wallet showdown

Apple is laying the groundwork for an expanded mobile-payments service, leveraging its growing base of iPhone and iPad users and the hundreds of millions of credit cards on file through its iTunes stores.

Eddy Cue, Apple's iTunes and App Store chief and a key lieutenant of Chief Executive Tim Cook, has met with technology industry executives to discuss Apple's interest in handling payments for physical goods and services on its devices.

A new payment service would launch Apple into what is becoming a fierce battle over how people pay through mobile devices.

Other players include eBay's PayPal unit, Google and start-ups such as Square and Stripe. Forrester Research estimates that Americans will spend $US90 billion through mobile payments by 2017, up from $US12.8 billion in 2012.

Just this week, Stripe said it received $US80 million in funding that valued the four-year-old start-up at $US1.75 billion. The same day, activist investor Carl Icahn called for eBay to separate PayPal, which he called "a gem" of its business, into a separate company.

Mr. Icahn also owns a stake in Apple, and has been pushing the company to return more money to shareholders. In a letter to Apple shareholders last Thursday, Mr. Icahn urged the company to invest in mobile payments.

"We believe a revolutionary payments solution is now a very real opportunity that the company could choose to pursue," Mr. Icahn wrote.

Currently, Apple handles payments for movies, books, and music purchased through its iTunes store. Consumers can also buy apps and pay for items such as digital goods within an app through an iTunes account.

In its retail stores, Apple allows shoppers to pay for some products by scanning the item and paying with a credit card tied to iTunes.

It has introduced new technologies that could allow for paying through an iPhone, including a fingerprint reader for security and an iBeacon location-sensor that detects when someone is nearby.

However, Apple does not allow consumers to pay for physical goods and services, such as shopping for clothes or hiring ride-share service Uber, using an iTunes account. Users still need to input the credit-card information manually, an extra step that often deters purchases on smartphones.

"Apple is absolutely the sleeping giant in the payments world," said Denee Carrington, analyst at Forrester Research. "They have the capability; they just haven't tied it all together."

Christophe Uzureau, president of banking and investment services at analyst firm Gartner, told The Australian yesterday that Apple would face "a very different game" competing against digital wallets already in the marketplace developed by financial institutions along with Visa and MasterCard.

In Australia, Commonwealth Bank, ANZ, National Australia Bank and Westpac are all involved in reading digital wallet options. In November last year, CBA announced it was collaborating with MasterCard to offer MasterPass to its customers.

Also in November, PayPal, which has 4.6 million Australian users, said it was offering retailers point-of-sale software that used facial recognition and let customers check in at stores to pay for goods. All its users would be able to use the PayPal app on a mobile device to make retail payments.

Compare Mastercard and Visa payment options on mozo.com.au.