Did the U.S. Goverment Just Ensure Success for Apple Inc Pay?

By Markets Fool.com

The Obama administration has given Apple Pay the presidential seal of approval.

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The White House announced earlier this month that Apple Pay will join EMV chip-and-PIN as a standard for the roughly 9 million federal payment cards, including debit card accounts, used for distributing Social Security and veterans benefits. Apple Pay allows people to make financial transactions using credit or debit card information stored on an iPhone or iPad.

A press release from the White House detailed the steps taken: "Apple, Visa, MasterCard, Comerica Bank, and U.S. Bank are committed to working together to make Apple Pay, a tokenized, encrypted service,available for users of federal payment cards, including DirectExpress and GSA SmartPay cards."

Apple Pay will also be accepted starting in September for some government transactions, CEO Tim Cook said on Feb. 13th while speaking at the White House Summit on Cybersecurity and Consumer Protection.

These moves put Apple Pay on increasingly equal footing with traditional payment methods and should help the product gain traction.

What does this mean?
Allowing use of Apple Pay in government payments opens up a huge pool of business for the company. It could also serve as a litmus test to whether the general public will embrace mobile payments.

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"Tech and financial industries are hoping mobile payments will be the next big thing, but consumers really haven't seemed too interested so far," said Newsy's Zach Toombs in a video posted at USA Today. "So, there will likely be a lot of focus as to whether people embrace Apple Pay through the federal government."

Once the new optionis launched, Apple Pay will be an option for people receiving Social Security, veterans benefits, and other government money in lieu of the current system of prepaid debit cards.The opportunity for Apple, which takes a small percentage of each transaction, is significant.

The largest current card program for federal personnel, through the General Services Administration's SmartPay, uses cards issued by U.S. Bank. That program is responsible for 87 million transactions worth $26.4 billion each year, according to the GSA.

"It's not just the scale of this deal that makes it significant," Toombs said. "The federal government's embrace of Apple Pay could grant mobile payments the credibility it needs if the technology will ever become the new norm in commerce."

A look at Apple Pay on an iPhone 6 Source: Apple

Is Apple Pay working?
It is too early in the game to make a judgement on Apple Pay, which launched in October 2014, but some early signs are encouraging.

Bank of Americareported in its fourth quarter earnings release that nearly 800,000 customers had enrolled in the service, adding approximately 1.1 million cards. That is a small fraction of the its 16.5 million mobile banking customers, but it is a big number for a single quarter.

"Apple Pay currently works with about 750 banks and credit unions and at more than 200,000 payment kiosks," according to CNET. "And in just three months after launch, Apple Pay makes up more than $2 out of $3 spent on purchases using contactless payment across the three major U.S. card networks,"Tim Cook said last month.

Cook, who called 2015 "the year of Apple Pay," is understandably bullish, but moving from early adopters to widespread acceptance is a major leap.

What is next for Apple Pay?
The best way for Apple to grow its payment service is to make it as ubiquitous as possible. The company is building a base of retailers that accept Apple Pay, and adding the U.S. government as a partner is another piece of the puzzle.

The more institutions that accept or use Apple Pay, the stronger the platform becomes. The service has not hit the tipping point yet, but having government support pushes it closer to getting there. This deal will encourage more peopleto adopt Apple Pay, and those users will push more stores to accept it.

It is a grind, but Apple has come a long way in a few months, and this deal just keeps the ball moving forward.

The article Did the U.S. Goverment Just Ensure Success for Apple Inc Pay? originally appeared on Fool.com.

Daniel Kline owns shares of Apple. His bank is not partnered with Apple, or he would use Apple Pay. The Motley Fool recommends Apple, Bank of America, MasterCard, and Visa. The Motley Fool owns shares of Apple, Bank of America, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.