Mobile payments are exploding, so why is Apple still on the sidelines?


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Cash is far from dead, but its days definitely appear numbered. A third of U.S. consumers have now made payments via mobile device, roughly double the percentage of Americans leveraging m-payment capabilities just one year ago, according to IDC Financial Insights' eighth annual Consumer Payments Survey, issued earlier this week. Among consumers who've made a mobile payment, 56 percent used PayPal Mobile, with Amazon Payments and Apple's (NASDAQ:AAPL) iTunes service tied at about 40 percent each. IDC notes that despite iTunes' strong showing and the overall popularity of content like mobile applications and music, more respondents reported purchased physical goods with their phones than did online services, digital goods or virtual currency.

With mobile payments now established in the U.S., some of the biggest names in the business are looking across the Atlantic. Last week, Deutsche Telekom Chief Product and Innovation Officer Thomas Kiessling revealed the operator has met with Google (NASDAQ:GOOG) to discuss expanding the Google Wallet mobile payment platform to the European market. Details are scarce: Kiessling told Bloomberg that DT is sitting down with a number of credit card companies and banks as it looks to expand its mobile commerce capabilities, stating "We're talking to other players in the market, and even a cooperation with Google is theoretically possible… We're in talks there as well."

Kiessling's comments followed hours after Deutsche Telekom--which serves 93 million subscribers across its European footprint--announced a new mobile payment partnership with MasterCard (a key Google Wallet partner, in case you've forgotten). Later this year, the two firms will kick off Near Field Communications-based payment trials in Poland, with plans to unveil a full-fledged mobile wallet service in other markets in early 2013. The opportunity is huge: Kiessling said that 57 percent of all retail purchases in Europe are made using cash. Which is why it's no surprise to hear Square co-founder and CEO Jack Dorsey tell reporters that his fast-growing m-payment startup is planning to bring its signature dongle to locations outside the U.S. In addition, Starbucks is extending its popular Starbucks Card payment app to locations in Canada and the U.K.

But as companies like Google, Square and Starbucks expand to new international markets, each bringing with them their own distinct payment services and approaches, there's still no clear-cut sense of which technology will win out. Kiessling said that Deutsche Telekom plans to smooth the transition from cash to mobile commerce by installing NFC-enabled point-of-sale terminals in stores, a plan that seems both enormously costly and time-consuming--in the meantime, small businesses could adopt Square, while large retailers could follow the Starbucks model and introduce their own barcode-based in-store systems. Or maybe none of the above. There's just no telling.

And that's precisely why Apple is still standing on the m-commerce sidelines, waiting for all of this to shake out. Citing sources familiar with the matter, The Wall Street Journal reports that last year, Apple executives and engineers began debating the company's entrance into the space, mulling whether to create a new service that would embed various payment methods into iOS devices or instead build a payment network of its own. Scott Forstall, Apple's head of iPhone software, even assigned members of his team to work on comprehensive wallet application, while hardware staffers investigated contactless technologies including NFC and Bluetooth. But lingering questions over security, payment processing and retailer adoption scuttled the project. During an executive review, Apple CFO Peter Oppenheimer even asked if there is a newer, web-based technology more secure than NFC.

Apple is rarely the first mover into new technologies and market opportunities. "Apple is always a comfortable number two," Piper Jaffray analyst Gene Munster told the Journal, citing the company's belated but successful entries into businesses like smartphones and MP3 players. "They let their competitors do their market research for them." But Apple has been the pacesetter in mobile for so long that the m-payments market may never fully crystallize until the company makes its intentions clear. M-commerce will continue to grow in the U.S. and abroad in the meantime, but the cash deathwatch doesn't officially begin until iPhones crash the party.--Jason

UPDATED July 12 to correct Peter Oppenheimer's title. He is Apple's CFO.