Consumer credit is a double-edged sword. Used wisely, it enables smart money management and expense tracking. Misused, it can easily become a crushing financial burden that can only end in lifetime poverty and or bankruptcy.
While the levels of consumer debt have dropped after hitting a high of $1 trillion in July 2008, this number is still about $855 billion.
The standard way consumers access this credit is through the ubiquitous plastic credit card. Although the technological infrastructure has changed greatly, the basic card concept has been in use since the 1950s. Today, there are 1.5 billion credit cards in the United States; the average credit card user has 3.5 cards. The most popular card is Visa (NYSE: V), with 36% of the market, followed by MasterCard (NYSE: MA), with 27% market penetration, and American Express (NYSE: AXP), with a 6.5% market share.
While consumers' embrace of debt has declined slightly, it shows no signs of abating. However, the way we access our credit lines is about to undergo a revolutionary change. Let me explain.
I stopped into my local Starbucks (NYSE: SBUX) recently to pick up a drink and morning snack. The customer in line in front of me was showing the barista at the cash register her smartphone. Then I noticed that she left the register to pick up her drink without producing cash or a credit card. This struck me as unusual -- but then I remembered Game-Changing Stocks expert Andy Obermueller's article focusing on mobile payments.
I realized I had just witnessed my first actual mobile transaction.
Andy explains that plastic-free mobile transactions are the future of the consumer credit market. After witnessing the ease with which the Starbucks transaction took place, I decided to dig deeper into the mobile wallet idea. My research led me to wholeheartedly agree with Andy's premise that cardless transactions will dominate the market and truly change the way consumers access their credit and debit accounts. In fact, I expect the mobile wallet will lead to the death of the plastic credit card. It is indeed that powerful of a technology.
How Do Mobile Wallets Work?
There are two primary competing technologies in the mobile payment field: near-field communication (NFC) and Apple's (Nasdaq: AAPL) iBeacon.
Android-based smartphones -- such as those made by Samsung -- are the primary carriers of NFC.
Near-field communication is a low-powered short-range wireless transmitter that can send small amounts of data between devices in close proximity. It extends the common smartphone SIM card into a "smart card" that identifies your account to the network. It is the SIM card that creates the secure element that can hold payment cards and other options.
Large-scale rollouts of NFC technology are already underway with Visa's PayWave and MasterCard's PayPass, but these rollouts generally are focused on NFC technology embedded within credit cards rather than inside smartphones. (You may have seen this technology at your local gas station or convenience store.) Android-based smartphones -- such as those made by Samsung (OTC: SSNLF), Motorola (NYSE: MSI), Nokia (NYSE: NOK), BlackBerry (Nasdaq: BBRY) and LG Electronics -- are the primary carriers of NFC.
Apple (Nasdaq: AAPL) is the one holdout to NFC technology. That's because it believes it has a superior offering called iBeacon. This feature is found in Apple's latest mobile operating system, iOS 7, and runs on technology called Bluetooth LE (for "low energy") that allows late-model iPhones to communicate with other devices in a highly power-efficient manner.
The technology enhances the tracking feature inherent in Apple's devices operating on iOS 7. As you enter a retail location, iBeacon will be able to identify you, send personalized offers based on your preferences, and then enable you to pay for your purchase through stored credit data. While NFC's range is often limited to just 10 centimeters or less, iBeacon has around an 84,000-square-foot building footprint. Simply stated, NFC is just a payment system, whereas iBeacon is a complete marketing, sales and payment system rolled into one technology.
Risks to Consider: While the death of plastic is inevitable, consumers are sometimes slow to adopt new technology. For example, American Eagle Outfitters (NYSE: AEO) has been using NFC systems since 2011, but NFC accounts for just 0.01% of the chain's transaction volume. In addition, security concerns and information issues are a high hurdle to overcome.
Action to Take --> There are multiple avenues an investor can take to profit from this pending revolutionary change. Andy Obermueller has been bullish on NFC chipmaker NXP Semiconductors (Nasdaq: NXPI) since July 2012, and shares have climbed nearly 70% since his call. Another exciting development mentioned by Andy is the $800 million acquisition of payment processor Braintree by eBay (Nasdaq: EBAY) in September. My thoughts are that the Apple's iBeacon will be a huge positive for the company's shares. It may just be the catalyst Apple needs to break the $1,000 level.