How Worried Should Visa, MasterCard, and eBay Be About Apple's Mobile Payment Potential?

Source: Flickr / tableatny.

When a company is as big as Apple , any product or service it introduces has the potential to drastically impact other companies, in both good and bad ways. For example, until the iPhone was introduced, BlackBerry was the undisputed king of the smartphone industry. When the iPod burst onto the scene, it practically wiped out the digital music player businesses of rivals like Sony and Samsung.

There is reason to believe Apple is planning a pretty big venture into the mobile payments business, which could have severe consequences for some large companies.

Source: Flickr / r.g-s.

What is Apple planning?
Tim Cook has called mobile payments an "area of interest" to the company and several recent patent applications indicate the company might be getting serious about entering the business. In a nutshell, it looks like Apple wants to turn the iPhone into a payment device liked to the company's existing iTunes payment system.

EBay should be very worried
PayPal, which is eBay's mobile payment business, is currently the clear leader in the space with nearly 150 million active users.

However, if Apple gets serious about competing in the mobile payments space, they could become a powerhouse very quickly. Through its iTunes customer base, Apple already has almost 800 million customers' credit card information on file. If they were to create an easy way to link mobile payments through iTunes, thereby combining customers' payments with their current iTunes account, it could capture significant market share in the space.

But the potential impact on the credit card companies is less clear
For companies like Visa and MasterCard and the banks that issue their cards, the potential impact isn't so easy to define. There are both good and bad effects of Apple entering the mobile payment business.

On the positive side, with more than five times the active subscriber base of PayPal, it could introduce hundreds of millions of people to the mobile payment business. This could increase the charge volume on the 800 million cards linked to iTunes accounts, and could potentially shift a lot of purchases that are currently being made in cash to credit cards.

However, the potential negatives may outweigh the positives.

Source: Flickr / Sean MacEntee.

First, Apple generally combines several purchases into a single transaction. You usually see a few iTunes purchases combined into a single transaction, rather than a series of single-song charges. This could hurt the banks in terms of transaction fees received from card usage.

Perhaps the worst-case scenario would be if Apple developed some sort of person-to-person payment system which bypassed credit cards and banks altogether, as some of Apple's recent patent applications have alluded to.

For example, an article in American Banker points out that Apple's patent application that would turn the iPhone into a mobile payment device never even uses the word "bank", and only uses the term "credit card" once. Apple could conceivably create a payment solution that worked like a bank account (similar to PayPal), where users simply transfer money to one another directly.

What action should you take?
The best thing to do right now would be to wait-and-see.

So far, Apple's mobile payment business is very much in the "theoretical" stage. If and when something concrete develops, it will be a good idea to assess how Apple and their 800 million existing customers will affect Visa, MasterCard, eBay, and the other stocks in your portfolio. It will definitely be worth noting any discussion of payment processing solutions at the Apple Developers Conference next week.

One thing is for certain, anyways. If Apple does succeed in bringing mobile payments to the masses, there will be one big winner...Apple itself.

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Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Apple, eBay, MasterCard, and Visa. The Motley Fool owns shares of Apple, eBay, MasterCard, and Visa. 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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