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The outlines of an iPhone-centered mobile payment system are beginning to emerge. 

In previous notes, we've listed the reasons why we think Apple could be successful in payments — starting with their 800 million iTunes customer accounts, most of them associated with a credit card number (see chart, right) — but the expected iPhone 6 launch late this summer or autumn has created expectations of new payments-related phone features. 

Here's a review of where Apple is with mobile payments, and where we think it's headed. 

WE BELIEVE APPLE'S MOBILE PAYMENTS SYSTEM WILL REST ON THREE COMPONENTS:

  1. iPhone mobile payments will center around Touch ID, the iPhone's fingerprint-scanning system. iPhone users will confirm their identity and authenticate transactions (both for online and in-store purchases) by pressing their finger against the scanner.
  2. For offline payments in bricks-and-mortar retail settings, iPhones will use Bluetooth to beam payment data to beacons, low-cost hardware that attach to walls, shelves, or countertops. With beacons, conventional checkout registers won't be needed. Customers could checkout — purchase items and have their purchases approved — through an app as they walk out of a store, without ever seeing a clerk, fishing for their wallets, or approaching a payment terminal.
  3. Payment information would be protected by a process known as tokenization, which means the real credit card information is never exposed, even as payments data is relayed from the phone to a merchant beacon.

This system would be easy to use, relatively simple for merchants to adopt, and secure. All the ingredients are in place, but technical and other important barriers to adoption remain. It is still an open question too whether consumers will be ready for a truly frictionless experience that dispenses with the checkout altogether.

THE VISION IS BLUETOOTH BUT DON'T COUNT NFC OUT:  Introducing any new payments technology for offline payments involves collaborating on technical matters with card-issuing banks, credit card companies, merchants, payment processors, and the providers of point-of-sale hardware. For example, tokenization for Bluetooth- and beacon-powered payments requires the collaboration of the card-issuing banks, which issue credit cards to consumers. Analysts such as payments veteran Tom Noyes say banks aren't yet on board with this technology. 

Banks have certified a tokenization process to power transactions through NFC (near-field [...]