NEW YORK (TheStreet) -- Apple Pay is set to become a game-changer in commerce even though it may take a few years to fully catch on.
According to a new in-depth report from Morningstar, the new service -- one that allows certain Apple devices to pay for goods and services during checkout at brick-and-mortar retail and online stores -- will create a ripple effect for everyone involved from end users to merchants, card issuers and networks and especially Apple (AAPL) . But, Morningstar analysts warn the new technology "may take many years before reaching full adoption by merchants and consumers." The report states that Apple Pay's "medium-term potential" to the company's top line appears "somewhat muted."
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Currently, Apple Pay can be used on an iPhone 6, 6 Plus, an Apple Watch (arriving early in 2015) or an iPad Air 2 or iPad mini 3. iPhone 5, 5s and 5c fans will also be able to use the payment system by connecting through an Apple Watch. The actual transaction is handled with a quick swipe via a brief NFC (Near Field Communication) connection and is authenticated by the user's fingerprint on their device's TouchID sensor. The idea is to replace the credit and debit magnetic stripe card system with swipe of an newer Apple device. Card issuers including Visa (V) , MasterCard (MA) and American Express (AXP) are already an integral part of the program.
For now, Apple Pay is only available in the United States and is in more than 200,000 stores. Apple says an international roll-out is planned for the future.
Apple shares were off 0.28% to $108.09 in early morning trading in New York.
Morningstar analysts believe Apple Pay's initial economic impact on card issuers, acquirers, and payment networks will be limited:
Some low-value transactions will shift from cash to Apple Pay and fraud costs will fall, but lower interchange revenue for card issuers is likely to partially offset these benefits. Apple's strategy to embed payments as a key feature into iOS and the App Store, along with its ability to translate user enthusiasm into adoption, as critical factors in establishing an economic moat, or sustainable competitive advantage, in the payment business.
Apple leveraged its strengths in vertical integration, brand equity, and premium hardware to build a service that requires immense cooperation, and it may be difficult for Google (GOOG) to compete as effectively because of the openness of the Android ecosystem.
While most of the headlines paint Apple Pay as a potential threat to eBay's (EBAY) PayPal, Morningstar experts see the launch opening up several opportunities. PayPal has entrenched itself as a key player in mobile payments, and as the mobile payment industry evolves, our analysts see opportunities for PayPal (and its Braintree subsidiary) to become both a facilitator of mobile transactions and a key mobile app funding source.
The report did not have all the details on Apple Pay's main rival, CurrentC but it was skeptical that the service will gain widespread adoption, citing two major reasons: the service forces customers to link directly to a bank account and then lose the ability to make purchases using credit plus the QR code technology used for CurrentC is "generally perceived to be less secure than Apple Pay's NFC-based system."
CurrentC's plans to allow retailers to save 2%-3% by significantly reducing its transaction processing fees has attracted a number of service providers including Wal-Mart (WMT) , Target (TGT) , CVS Health (CVS) , Rite-Aid (RAD) and Southwest Airlines (LUV) . CurrentC retailers, known collectively as the Merchants Currency Exchange (MCX) have agreed not to use other NFC-based payment systems (such as Apple Pay) or face hefty fines. No start date has been set for the launch of the CurrentC service.
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