Apple Stock Will Zoom on This $626 Billion Opportunity (AAPL)

For all the talk about fancy new hardware (like the iPhone 6) that's in Apple Inc.'s (Nasdaq: AAPL) pipeline, there's another, lesser-known initiative on the horizon that has an even better chance to move the needle on Apple stock over the next year.

It's another one of those things that's been brewing at the Cupertino, Calif.-based tech giant for several years, but now looks ready for prime time.

This is an industry poised to grow exponentially, from $133 billion last year to $626 billion in 2018, according to one estimate by Goldman Sachs (NYSE: GS).

This is the nascent mobile payments industry - in other words, people using their smartphones and tablets not just to shop for things, but to pay for things.

And AAPL already has most of the pieces in place to dominate this industry.

Apple Has Already Laid the Groundwork

First of all, we know AAPL is interested in this.

AAPL stock"The mobile payments area in general is one that we've been intrigued with," Apple Chief Executive Officer Tim Cook said in the company's January earnings conference call. For secretive Apple, such a statement is the equivalent to posting a 50-foot-tall flashing sign in the middle of Times Square.

And we've seen the incremental progress toward a mobile payment strategy the company has made over the past couple of years.

One of the biggest: The Touch ID feature introduced on the iPhone 5s last year that provides a secure, one-click solution to making payments with a mobile device. Expect that feature to migrate to many more of Apple's mobile products this fall.

Back in April, news leaked that Apple was hiring high-ranking executives to run a mobile payments operation.

And then there's iBeacon. Many top merchants, including Macy's Inc. (NYSE: M) and Target Corp. (NYSE: TGT), have adopted the technology, which uses Bluetooth Low Energy (BLE) transmitters to create a "zone" in which people can have data beamed to their device based on where they are in the store.

But iBeacon could also serve as a mobile payment platform. Customers could use the iPhone's camera to scan the barcode on each item and then press the Touch ID button to pay for it.

The user would need to have a payment mechanism set up on the phone, of course, which would probably need to be linked via its Passbook app to a credit card account.

That's another base AAPL has covered. The company already has about 800 million customer accounts at the iTunes Store. By comparison, online retailing giant Amazon.com (Nasdaq: AMZN) has fewer than 250 million.

And now Apple is supposedly in talks with several credit card companies - Visa Inc. (NYSE: V) in particular - about coordinating on a mobile payment platform. A report a few weeks ago on The Information claimed the companies have already reached a deal.

Last month Visa announced a service called Visa Digital Solutions designed to facilitate mobile payments.

A marriage between two heavyweights like Apple and Visa - big, highly visible names that many customers already trust - could greatly accelerate the adoption of mobile payments, and put both companies in a strong market position.

And there could be a ton of profit in this for both companies. Here's how that will work...

Why Apple Stock Will Get a Boost from Mobile Payments

As many people know, credit card companies like Visa make most of their money from something called "interchange fees." Of the 2% or so that merchants pay for each card transaction, the credit card company gets a tiny slice, usually 0.11% (the issuing bank gets most of the rest).

It doesn't sound like much, but Visa alone posted a profit of $1.36 billion in its most recent quarter.

By integrating mobile payments into the iPhone's hardware and software, Apple will also be entitled to a cut, probably about half of a percent.

"Apple is trying to take the piece that acts as the merchant servicer behind Visa and MasterCard," Gina Sanchez, founder of Chantico Global, told Yahoo Finance. "It's a big market."

Again, we're talking about a very small percentage of some big numbers. Goldman Sachs is projecting nearly $300 billion in mobile payments in 2015 en route to the $625 billion in 2018. If the Apple/Visa alliance were to get even a third of that business, we're talking about an extra $500 million in Apple's coffers.

And as the mobile payment market grows, that number will only get bigger.

What's more, if Apple's version of mobile payments catches on - and that's probable, considering the company's track record for getting things right - it will give people one more reason to choose Apple's hardware over the offerings of rivals.

And selling more iPhones and iPads always does marvelous things for Apple's bottom line - and for Apple stock.

The only question now is whether we'll see the Apple "iWallet" this fall or early next year.

"Apple is absolutely the sleeping giant in the payments world," Denee Carrington, an analyst at Forrester Research, told The Wall Street Journal. "They have the capability; they just haven't tied it all together."

For updates on AAPL stock and other technology news, follow me on Twitter @DavidGZeiler.

UP NEXT: Things are looking up for AAPL stock everywhere you look. A couple of weeks ago, Apple and Samsung called a truce in their three-year-old patent war. Here's why the two companies are suddenly less hostile, and what that now means for Apple...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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