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Could Apple Kill the Credit Card?

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Apple’s next iPhone will have mobile payment functionality, as a result of partnerships with Visa, MasterCard and American Express, Bloomberg reported Monday.

The information comes from someone “familiar with the situation” and indicates the mobile payment function will be announced alongside the new hardware at an Apple event next week. Assuming the information is correct, here’s what to expect.

There are plenty of digital wallet applications available to iPhone users, but they’re not replacements for the arsenal of plastic most people keep in their purses or pockets. At best, they reduce the number of loyalty cards dangling from people’s key rings or solve the problem of having a wallet thick with gift cards, but credit cards don’t have a barcode — and the magnetic-stripe technology doesn’t really transfer to a phone screen.

The new iPhone will reportedly use near-field communication technology to facilitate in-store payments, a capability already available on some phones running Android. That’s why Google Wallet is generally more functional for Android users than iPhone users. The report from Bloomberg indicates the NFC capability on the iPhone 6 will tie in the fingerprint recognition technology released with the iPhone 5S, theoretically adding a layer of security to the mobile payments option.

NFC, also known as contactless payment or tap-to-pay, is a wonderful convenience, but there’s a catch: The payment terminal in use wherever you’re shopping needs to be NFC-enabled. Such terminals aren’t terribly common in the U.S., and considering that Android operating systems are more common in the U.S. than iOS (and overwhelmingly dominant on a global scale), it’s worth wondering if the addition of NFC technology to iPhones will put pressure on retailers to adopt it.

At the same time, 41.9% of smartphones run Apple’s operating system according the May 2014 market share analysis from comScore (compared to 52.1% running Android), so if iPhone users eventually upgrade to the iPhone 6 and have NFC payment ability, perhaps retailers would have more incentive to offer tap-to-pay in their stores.

The details remain to be clarified, but it’s at least interesting to see Apple optimizing its hardware as a financial tool.

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