Apple's iBeacon Could Lead to iPayments

Apple's iBeacon Could Lead to iPayments

Apple added a new device to each of its retail locations on Friday -- the iBeacon. The iBeacon is not for sale, though. It's a tiny device that uses low power Bluetooth to track your location inside of its stores and push information to users phones. It's more precise than GPS is indoors and consumes much less power.

This isn't revolutionary technology; Apple doesn't have any patents on Bluetooth 4.0 and eBay released a similar device, PayPal Beacon, in September. Apple could, however, use the technology to help facilitate in-store e-payments just like PayPal is trying to do.

EZ Pass for stores
Every iPhone is linked to an iTunes account. Most every iTunes account is linked to a credit card. At last count, Apple had 600 million iTunes accounts. It doesn't take an Apple genius to see the opportunity here.

eBay figured it could leverage its 137 million active accounts to create a frictionless checkout experience for retailers and customers. Its PayPal Beacon can detect users who have installed the PayPal app on their phone. A customer just needs to verbally confirm their purchase at checkout.

It's a great product idea, and if one were to reimagine how payments work in the 21st century, that would definitely be close. It certainly fits the Apple model. The biggest thing standing in its way is the fact that credit cards are already really easy to use.

Better than NFC
That's the same problem Google ran into when it launched Google Wallet, and tried to promote payments through near field communication, or NFC. The BLE beacon has several advantages over NFC, however, which may facilitate higher adoption rates.

First, BLE is significantly less expensive. NFC only operates over very short distances, so creating a similar product to the iBeacon using NFC would require thousands of tags. Although, the end result would be extremely precise, there's no need for that level of location awareness.

Second, users wouldn't need to take their phone out of their pocket. Even standing at a register, a customer's phone is unlikely close enough to an NFC tag to facilitate payments. The optimal range for NFC is 4 centimeters. BLE beacons operate with a range up to 50 meters.

Third, more phones support BLE. Although Google was a long holdout, it finally gave in and started supporting BLE in Android 4.3. Big-name manufacturers like Samsung added support for the protocol on their own. Apple, on the other hand, has long ignored demands for NFC support, and instead focused on bluetooth.

The beacon idea is about as frictionless and easily implemented as payment can get, but it still requires an added push to win customers.

Incentivize the customer
People respond to incentives. Reducing a small amount of friction at the checkout isn't enough of an incentive for most consumers to completely change their habits. This is where an Apple payment system can trump PayPal.

In fact, the iBeacon is designed with promotional offers in mind. A customer walks into a certain aisle and an app can push a relevant coupon to her. Moreover, retailers are incentivized to use the system as it provides feedback on its customers shopping habits.

Apple could partner with retailers to couple rewards programs with an Apple payment system -- no need to swipe cards. The iBeacon could recognize frequent shoppers automatically and offer loyalty rewards.

Additionally, Apple could offer rewards in the form of iTunes or Apple Store credit, which would be more profitable than just about anything eBay could offer (think cash back). In short, in order to win customers, the incentives need to be better than other payment options like credit cards. I think Apple is better positioned than eBay to offer that.

Apple's newest gadget
Many investors are worried that Apple has lost its innovative touch, and complain the company hasn't released a new product line in years. The iBeacon has the potential to open the door for a big potential revenue stream. With more credit cards on file than any other company, the opportunity is there for the taking.

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Adam Levy owns shares of Apple. The Motley Fool recommends Apple, eBay, and Google. The Motley Fool owns shares of Apple, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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