Apple Mobile Payments: What Should Banks Do?

Apple's rumored plans to get into mobile payments can be seen in several ways. If Apple decides to disrupt the "four-party" existing retail payments model, the company might be a threat. If it decides it wants to do something else, it could be a banking partner.

The natural instinct for some is to put Apple in the same camp that many have put PayPal Inc. and Wal-Mart Stores Inc., that of the enemy. But banks that look for ways to work with Apple might find themselves getting a new distribution channel.

"If we as a banking industry don't get our head around payments, we risk the chance of an Apple or Google or anybody else being a disrupter in the space and taking some of the volume, very similar to the way PayPal has become a disrupter in the industry," said Jeff Dennes, the director of online and mobile services at Huntington Bancshares Inc.

The big issue is how, and where, Apple decides to play within the ecosystem. Right now, the retail payments business is anchored around a four-party model that includes merchants, consumers, acquiring and the banks used by the consumers and retailers. Everything else basically revolves around those four key actors.

But Apple might try to invent something new, possibly linking existing customer accounts to iTunes, a setup similar to what eBay Inc.'s PayPal does. This could cause banks to lose some of the revenue they would normally gain through card transactions, as Apple would insert itself into the ecosystem.

Apple's iTunes Store, which could serve as the mobile wallet used to store payment information on a consumer's payment-enabled device, generated net sales of $1.16 billion in its 2011 fiscal first quarter ending Dec. 25, according to Apple.

In Apple Mobile Pay Plans, a Possible Opening for Banks - American Banker