Apple’s expansion into iPhone contactless payment acceptance could significantly change the competitive landscape for mobile point-of-sale solutions. By using the iPhone’s built-in NFC technology, merchants could potentially accept contactless credit and debit card payments simply by tapping a card or another smartphone against the device, eliminating the need for a separate card reader.
The development also raised important questions about Apple’s broader payments strategy. Companies such as Square already combine payment acceptance hardware with merchant accounts, processing, and settlement services. For Apple to compete more directly, it would need to determine whether to build comparable capabilities or partner with an established payments provider. How broadly Apple allows third-party applications to access the technology could also determine whether the feature complements existing payment providers or competes directly with them.
Apple has withheld access to the NFC chip on the iPhone ever since it was first shipped to protect its wallet business. While this article speculates that perhaps things will be different as Apple roles out the ability to accept cards using the iPhone’s NFC chip, I’d bet dollars to donuts it remains an Apple-only product that competes with Square and all other iPhone acceptance solutions. While eliminating the need for hardware is an advantage, it also creates a disadvantage in that the solution can’t accept EMV or mag stripes without the added hardware.
Then the question becomes: What happens to the money? When Square enables a merchant to accept a card, the value is cleared through a Square merchant account that moves the funds to the merchant’s demand deposit account (DDA). To compete with Square, Apple needs a similar construct, but nothing in the announcement suggests that is happening. This is a build vs. partner question. Perhaps, as with Apple Card and Goldman Sachs, Apple will find a partner willing to play by Apple’s rules:
“In order to accept payments on an iPhone today, merchants need to use payment terminals that plug in or communicate with the phone via Bluetooth. The upcoming feature will instead turn the iPhone into a payment terminal, letting users such as food trucks and hair stylists accept payments with the tap of a credit card or another iPhone onto the back of their device.
The move could impact payments providers that rely on Apple’s iPhones to facilitate sales, such as Block Inc.’s Square, which dominates the market. If Apple lets any app use the new technology, then Square can continue accepting payments via Apple devices without needing to worry about providing its own hardware. If Apple requires merchants to use Apple Pay or its own payment processing system, that could compete directly with Square. A Block representative didn’t immediately respond to a request for comment.”
iPhone contactless payment acceptance could make accepting card payments easier for small businesses and individual merchants by removing the need for dedicated NFC hardware. However, payment acceptance involves much more than capturing a contactless transaction, including processing, settlement, merchant accounts, and moving funds into a business’s bank account.
Apple’s approach to those functions—and whether third-party payment providers receive access to the underlying NFC capabilities—will ultimately determine the competitive impact. The technology could either strengthen existing iPhone-based merchant payment solutions or position Apple as a more direct competitor to companies already serving the mobile point-of-sale market.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group