Your Smartphone as Your Wallet: 3 Companies That Will Cash In
byAug 1st 2012 10:23AM
It goes without saying that smartphones are here to stay.
A whopping 491 million smartphones shipped in 2011, according to market research firm IDC, and 2012 is shaping up to be a similarly strong year, with 145 million smartphones shipped in the first quarter alone.
It's no surprise that in the 10 years since smartphones first hit shelves -- and 5 years since Apple's (AAPL) iPhone appeared -- nearly 50% of U.S. mobile-phone users already own a smartphone, according to Neilsen.
And it's unlikely that the growth will halt.
But now, another epic shift is occurring -- one that could not only affect your mobile habits, but also have you tossing your wallet away. It's also one many believe has the potential to make investors a fortune -- so long as they're looking in the right places.
Paying With Your Phone
Tech insiders are scrambling to make smartphone technology render wallets obsolete. A recent Fortune magazine cover story predicts this may ultimately result in "the death of cash" -- a bold prediction, sure. But mobile-payment upstart Square already processes $6 billion worth of transactions a year. Online-payment giants like eBay's (EBAY) Paypal and Google's (GOOG) Wallet are also seeing impressive growth.
Credit card companies Visa (V), MasterCard (MA), and American Express (AXP) are quickly trying to prevent their own obsolescence in the wake of an emerging technology.
Meanwhile, there's also the emerging field of near-field communications technology, which enables you to pay by merely touching your phone to a compatible register.
Confused yet? You should be. Because with so many competing technologies vying to be the next payment standard, the future isn't all that clear.
It Starts With Changing Ingrained Behavior
Part of the problem is that it takes a lot to convince people to change.
Credit cards saw strong growth in America in the mid-20th century, but it wasn't until rewards became commonplace that plastic became a preferred paying mode.
So the difficult questions that arise along with these technologies are: Do they really make life significantly easier? And, since humans are creatures motivated by incentives, are the rewards great enough to convince them to change?
The answer to both is no.
Carrying a just a phone instead of a phone and a wallet doesn't improve someone's quality of life all that much -- nor are there significant rewards attached to paying with your phone.
Of course, this isn't to say that the possibility isn't there. Once driver's license information is stored on smartphones and your homes or cars can be unlocked with a swipe of the phone, the perks of only carrying a phone will be clear.
And when your cellphone receives targeted deals based on your spending habits or local sales -- available only if you pay with your smartphone -- individuals will begin to consider the swap.
Although the benefits of the technology are unclear, that doesn't mean there's no opportunity for investors. And I'm confident the companies that will benefit from the eventual go-to mobile-payment technology will be eBay, through Paypal, Amazon (AMZN), thanks to its Payment platform, and Apple, via its iTunes Store.
Why these three companies? Because they've already developed a level of trust with consumers.
According to numbers IDC released earlier this month, a surprising 33% of U.S. residents are already using some form of mobile payment. An impressive 56% of those who have used it made a payment through PayPal. Following not far behind were Amazon Payments and Apple's iTunes Store, which both clocked in at about 40%.
So whether you seek to profit from "the death of cash" (if it ever comes) or to invest in these exciting technologies as they emerge, these are the three companies you should be looking at.
This article was written by Motley Fool analyst Adam J. Wiederman, who owns no positions in the companies mentioned above. The Motley Fool owns shares of Apple, Google, Mastercard, and Amazon.com, and has created a bear call spread position in American Express. Motley Fool newsletter services have recommended buying shares of Apple, Visa, Amazon.com, Google, and eBay, as well as creating a bull call spread position in Apple and writing a covered strangle position in American Express.