iPhone 5S Touch ID fingerprint sensor points to Apple's mobile payments future



Apple (NASDAQ:AAPLtook the wraps off its new iPhone 5S Tuesdayand as rumored, the latest edition of the iconic smartphone touts Touch ID, a capacitive sensor embedded in the home button that unlocks the device by scanning the user's fingerprint. Touch ID, which boasts 500 ppi resolution and scans in 360 degrees, will enable users to log in more quickly than conventional passcodes, Apple explained. "This is something you do dozens of times a day, to unlock and get access to your phone. Unfortunately, some people find that's too cumbersome and they don't set it up," Apple Senior Vice President of Worldwide Marketing Phil Schiller said at the iPhone 5S launch event, noting that roughly half of iOS users do not have a passcode in place.

Touch ID's emphasis on device security should help Apple push the iPhone further into the enterprise sector while enabling banks and financial services providers to accelerate their mobile rollouts. The fingerprint is stored on the device and never backed up to the cloud, Apple said--moreover, removing alphanumeric passcodes from the equation eliminates the possibility that thieves or hackers can guess the code, especially if it's based on something obvious like a child's name or birthday.

Touch ID isn't only about security, however. The technology also supports purchases across Apple's iTunes digital storefront, which signals that it doubles as the Trojan Horse that will finally bring to fruition Apple's long-awaited mobile payment plans.

Touch ID is built on technology Apple absorbed when it acquired digital security firm AuthenTec for $356 million in mid-2012. AuthenTec offered encryption software, fingerprint sensors, identity management tools and Near Field Communications services integrated into a range of portable electronics products, and those components set the stage for iOS to support payment options. "We expect the iPhone 5S to include a fingerprint sensor with a basic unlocking feature, but do not believe the sensor will be built into iOS 7 enough to introduce a feature like secure payments as we believe that AuthenTec has only been a part of Apple for less than one year," Piper Jaffray analyst Gene Munster correctly predicted in an investor note last month. "We believe that payments could be a key feature of the next version of iOS in 2014."

Apple isn't going to sit on the mobile payments sidelines forever, obviously, nor can it afford to stand by while others stake their claims in the segment. Just this month, eBay-owned PayPal updated its iOS app to make it easier for users to complete mobile payments at restaurants and retailers and also unveiled Beacon, an add-on technology enabling consumers to complete in-store mobile payments without even removing their iPhone. Isis, the NFC-based mobile commerce network spearheaded by Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS), will expand services nationwide later this year and extend its mobile wallet beyond Google's (NASDAQ:GOOG) Android to support iOS, Microsoft's (NASDAQ:MSFT) Windows Phone and BlackBerry (NASDAQ:BBRY). Google Wallet has also hinted at iPhone support, although Google has yet to prove the NFC-based service's commercial viability.

But Apple has always been famously resistant to embrace Near Field Communications in any capacity. High-ranking Apple execs have expressed serious doubts about NFC security, payment processing and retailer adoption. However, the most vocal NFC opponent, Apple's former head of iPhone software Scott Forstall, is no longer with the company, and the massive UI changes inside the new iOS 7 prove that the current Apple executive regime is ready, willing and able to break with company tradition.

There's no guarantee Apple will ever integrate NFC into iOS, of course, or that it would rely on NFC to support mobile payment services if it does. But a newly published patent application uncovered by AppleInsider indicates that Apple has been working on approaches to combining AuthenTec biometrics technology with NFC functionality, outlining potential short-range communications capabilities including security applications, interactions with vending machines and--you guessed it--the possibility of leveraging NFC data for wireless payments.

Even if Touch ID is the answer to Apple's NFC security concerns, the question of payment processing still remains, and likely explains why mobile wallet functionality is missing from iOS 7. Time will tell how Apple plans to tackle the payment processing dilemma, although hundreds of millions of users' credit card numbers are already tied to their iTunes accounts, which is an impressive start. As for retailer adoption, Juniper Research has blamed Apple's decision to withhold NFC support for dampening merchant enthusiasm for the technology. By the same logic, Apple throwing its weight behind NFC could be the game-changer that finally forces retailers to take the technology seriously. The pieces of the puzzle aren't quite yet in place and iOS 8 is still a looooong time away, but when it arrives, the smart money says NFC support will finally follow.--Jason