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Apple bets consumers would rather swipe than tap in mobile payments

July 31, 2012

Apple has acquired mobile security firm AuthenTec for $355 million, which could be the first step in a mobile payments solution where the final step would have users swiping their fingers on their iPhone screens instead of tapping the phone on a physical point-of-sale device.

While Apple is taking its time entering the mobile payments space in any signficant way, several recent steps reinforce the idea that payments are a focus. In addition to acquirsing AuthenTec, the company also recently introduced Passbook, a new app that brings together a user’s loyalty cards, coupons, airline passes and movie tickets in a single place.

“AuthenTec will bring its patented ‘swipe sensors’ technology to multi-touch devices such as iPod, iPhones and iPads to enable accurate fingerprint solutions,” said Neil Shah, senior analyst for the global wireless practice at Strategy Analytics, Newton, MA.

“Fingerprint initially will be just the first step towards authenticating and enabling the mobile wallet instead of entering a pin followed by either tapping the phone (using NFC, Bluetooth) or through Internet and making the final payment,” he said.

“From a usability perspective it’s easier to do a one-handed tap rather than holding a phone and doing a finger-swipe at the same time to enable the final payment. However, it is expected from Apple to nail the user-experience for this use-case and come up with a way to leverage this functionality and also keep it simple at the same time.”

User-friendly payments
None of the mobile payments solutions in the market so far have clearly won the hearts of consumers and retailers. In fact, there are signs that near-field communications is taking longer to pick up steam in the United States market than was expected while stop-gap measures such as mobile apps providing unique 2D bar codes to authenticate a purchase are spreading.

In this environment, Apple appears to be taking its time possibly as it works on developing a more user-friendly solution (see story).

One of the issues that consumers have with mobile payments is safeguarding their personal information. AuthenTec’s technology may give Apple a way to offer secure mobile payments.

AuthenTec makes fingerprint-scanning technology that requires a match before unlocking a device. The company also makes mobile security software.

Security issues loom
Security is becoming a bigger issue in mobile all the time as consumer adoption of smartphones and tablets grows. Not only are more consumers purchasing these devices but they are using them for a growing array of activities, including making purchasing and consuming content.

By adding a safeguard such as fingerprint scanning, Apple may be looking to make consumers more comfortable using their devices to make purchases. The company is likely to tailor the technology specifically for the iPhone and iPad.

AuthenTec’s technology is already used by other mobile companies such as Samsung.

Security is also a growing issue as regulators, lawmakers and privacy advocates increasingly turn their attention to this space. There have been several widely publicized security gaffes in the past year and companies such as Apple are looking to beef up their mobile security strategies to insure that they do not become the focus of regulators.

Having a stronger position in mobile security also will not hurt Apple as it continues to gain traction in the enterprise space.

Patent play
Apple may have also wanted the company for its patents. Apple continues to aggressively pursue intellectual property litigation as a means to protect its position in the marketplace.

As part of the deal, Apple is also licensing AuthenTec’s technology for $20 million.

The deal was revealed in an AuthenTec filing with the Securities & Exchange Commission last week.

Taken together, the Passbook and AuthenTec announcements suggest Apple wants to make the iPhone part of the mobile payments space and will focus on security as one strategy for encouraging consumers to give it a try.

However, while the Passbook app is planned for release with iOS6 this fall, the AuthenTec technology is not likely to make its way into the next iPhone if it is also released in the fall, as expected.

“This important acquisition will help Apple build platform to add newer features in terms of privacy, security, identity management and different touch-centric navigation features to not only build newer consumer services such as mobile wallet, content/device protection but also strengthen and expand into enterprise verticals,” Mr. Shah said.

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