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Taking a Bite of Payments?

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Apple’s release of the iPhone Passbook app has people wondering about the potential it holds for retailers’ ability to accept payments from customers’ mobile phones.

Passbook does not have payments applications currently; instead, users scan barcodes from airline boarding passes, movie tickets, discount coupons and the like, and retain that information inside their iPhones.

However, several payments experts believe that if the smartphone can aggregate ticket information, it could also be turned into an electronic wallet aggregating credit and debit card information.

Potential for payments
One payments company that is keeping a close eye on Apple and Passbook is ZooZ, developer of an application that allows consumers to shop online via a mobile phone without entering a lot of identification and payment-specific information.

Oren Levy, ZooZ CEO, says it is unclear whether Apple can turn Passbook into a payments-related device, but “Apple could provide a mechanism that would allow customers to store barcode readings of their card in an electronic wallet,” he says, “and then customers could present their [phones] to pay for goods.”

George Peabody, an analyst for payments consulting firm Mercator Advisory Group, also believes there is payments-related potential for Passbook. “There are a lot of advantages to using Passbook combined with Apple features for payments,” he says.

If Apple did move into providing payments via the device, it is unclear as to whether it would develop the applications in-house or simply provide the basic hardware on which existing payments companies, including ZooZ, could provide software and processing services.

“We don’t know whether this is an opportunity for companies like ourselves or a threat,” says Levy. It could certainly be seen as a threat if the company decides to develop a payments platform, potentially leveraging 400 million existing iTunes accounts.

Peabody is cautious. “Apple is not saying anything about what its plan could be for payment,” he says, so any and all discussion about what it might do “is pure speculation.”

Like many payments experts, Levy believes it might not make sense for Apple to build its own platform, and that working with payments software and processing companies could make it easier for retailers to allow customers to pay at POS with their mobile phones.

The future of ZooZ
Although applications from ZooZ are currently available for online shopping only, Levy says using the application in bricks-and-mortar stores could be a possibility in the future.

ZooZ’s MobiCart is being used by more than 10,000 retailers, many located in the U.K. It allows customers to pay for online purchases by simply typing in their name and an access code. The detailed information only has to be entered once when customers register for the program, and can be used over and over again at any retailer participating in the ZooZ program. The ease of use for consumers translates into higher conversion rates for retailers, Levy says.

MobiCart contains the customers’ credit card data and other pertinent information, like mailing address. That prevents the customers from having to retype all the information – a task that can be cumbersome on a phone’s small keyboard. MobiCart allows retailers to retain their own websites and customers can store their payment information in any language or currency. Customers may store multiple cards in their wallet and designate which card is to be used for specific purchases.

ZooZ also assumes all the security risk associated with the retention of customer account and payment information, using advanced encryption and firewall technologies to provide customer data security.

Low-margin business
Levy notes that existing transaction fees are based on high transaction volumes, and the current fee structure of most payments programs may not have the immediate return Apple is used to seeing.

He also questions whether Apple would want to develop the proficiency that is required to handle payments beyond providing digital content through iTunes.

“Apple will need someone with expertise in payments to work with,” Levy says, “just like Google teamed up with Citibank and MasterCard when it introduced Google Wallet.”

Peabody says Apple might choose to provide the hardware for payments and let the specific payments applications be handled by others. “It is a low-margin business,” he says. “Apple may not want to get in that business.”