Schafer: Big news from Apple was the payment scheme

It wasn't until a copy of Gene Munster's research arrived Wednesday that the Apple news got my attention.

Forget the slightly bigger screen of the iPhone 6, it's Apple Pay that's the big deal this week, Munster said. It's the most significant thing Apple's done since launching the iTunes Music Store 11 years ago.

The reason to pay attention to what Munster thinks, of course, is that this Piper Jaffray analyst here in Minneapolis remains the most closely followed stock analyst commenting on what has turned out to be his generation's most successful growth company.

Apple won't be the first with mobile payments, and it's a service that few people think they need. Even so, he said Apple has figured out how to tie this service in with its other technologies in a way that gives it a great shot at being the company that actually realizes some of the long-awaited potential of mobile payments.

And that makes what this big Silicon Valley company does worth closely watching by the rest of us.

Most of us likely missed the event itself, the live video and live blogs and all the rest. By the time it rolled round Tuesday, most of us already had a case of hype fatigue.

So, the iPhone 6 was going to have a bigger screen and maybe a better camera. Great. Learning that news felt a lot like hearing that a new Chevy Tahoe had an improved traction control system.

Apple did actually discuss its new iPhone's bigger screen, along with a smartwatch. Then there was Apple Pay — and that one may actually shift the ground under our feet.

When I caught up with Munster on the phone Wednesday, he said he can agree that the need for a mobile wallet today is at a minimum debatable. Credit cards and debit cards, for all the recent news about big companies losing customer data to crooks, do actually work pretty well. They are really easy to swipe at the counter and the bank gives the consumer a precise record of how much got spent.

And financial habits are hard to change.

"This is going to fundamentally change how you use your phone," Munster said. "Your phone is going to become your wallet. To get it to the point where you're using your phone everywhere … we might be five to 10 years away from that."

He said it may be like the rollout of all-purpose credit cards, which it took from the 1960s to 1980s to gain momentum.

But what Apple will be doing is getting the ball rolling, and security is actually one of the things Munster is most enthusiastic about. Apple a year ago introduced a fingerprint identification system into its iPhone 5s. If no one saw the reason for that, then they didn't see mobile payments coming.

Fraud is baked into the costs of the payment system we have right now. There are actually two fees, one for when the card is handed to the merchant, and another for "card not present."

Those "not present" cases are mostly e-commerce transactions. That's when a credit-card number is typed into a field on a website and the order button is clicked, even though the credit card itself might be downstairs or even, God forbid, back in the rightful owner's purse two area codes away.

Because a card-not-present transaction is just a little bit more uncertain, it carries a higher fraud fee than a card-present transaction.

Munster thinks the security features of its phones gives Apple the chance to show it can reduce fraud. It's possible that online transactions through Apple Pay could eventually be thought of as secure enough to warrant the lower-cost, card-present fee.

So Apple Pay should be fast, always available — no one goes anywhere without the mobile phone — and potentially more secure. And paying with an iPhone will be cool, he added, don't forget that.

Consumer enthusiasm won't matter very much unless merchants embrace Apple Pay, of course. For them right now another mobile wallet almost certainly looks mostly like just another cost involved in collecting money.

But if Munster is right that Apple gets the consumer to fundamentally change how his phone is used, and it comes to include business cards, credit cards, debit cards, loyalty cards, gift cards, parking passes and all the rest, then merchants that skip it could lose ground to competitors.

Merchants could also look at Apple Pay as a better opportunity for loyalty management. Adopting a mobile payments system allows merchants to tell their customers to simply toss away the punch card that had kept track of past purchases.

Munster had been expecting for months for Apple to launch some kind of payments service, but he did not expect Apple to have Visa, MasterCard and American Express lined up along with big merchants like McDonald's. And the payments system is more integrated into Apple's software than he thought it would be.

For him the situation looks a lot like when Apple's original iPod was first on the market, a nice little music player that wasn't really all that different from the MP3 players sold by others.

What made the music player venture really work for Apple was the subsequent introduction of the iTunes Music Store, where prerecorded music could be easily downloaded, then sorted on a desktop Apple computer and dumped onto the player.

For all the other companies now in the mobile payments business, Munster said, Tuesday wasn't a very good day. Before the open on Wednesday, Munster downgraded the stock of eBay, owner of PayPal.

PayPal doesn't have a big mobile business yet and it may be a long time before Apple really threatens it, but Munster said he's seen enough to see the risk.

PayPal has an application, running on all sorts of mobile devices, Munster said, not one secure and integrated payments platform.

"Apple has made more progress in one day," he said, "than PayPal's been able to do the past two years."

lee.schafer@startribune.com • 612-673-4302