Apple and Visa to work together?

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In another bout of analyst fuelled prospecting, Apple and Visa are now deepening their relationship – Pacific Crest analysts issued a report in which they declare that “we think a partnership between Apple and Visa would make strategic sense and believe an announcement could happen as early as this fall.”

The report presumes the next model of the iPhone, an “iPhone 6,” will have contactless payments technology in it.

As the analysts see it, past efforts to use mobile devices at point of sale were cumbersome, and Visa has introduced ways to make it easier:

“Security has played a key role in the formation of mobile payment initiatives and in the past has introduced complex business models that have been unable to scale quickly. ISIS used a physical secure element and a carrier SIM rental model. Google has moved toward a host card emulation (HCE) to reduce business-model friction. PayPal has relied on distribution partnerships with terminal providers and networks […] New security models could lower adoption hurdles for mobile payments at physical retailers and expand the Visa platform, enabling new commerce opportunities for technology giants, merchants and issuers.

The authors offer the following slide of Visa innovations (click for larger image):

Pac Crest Visa e-payment innovations August 2014

For Apple, the Visa “token service” could help it “gain scale more rapidly,” which has been a “key obstacle that has muddled previous mobile payment projects.”

“A combination of cloud-based (HCE) and physical (SE or TEE) seems like a plausible security strategy for Apple.”

The authors offer this graphic of stock implications for Apple:

Pac Crest AAPL payments payoff Aug 2014

 

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