Updated Sept. 9, 2014 7:50 p.m. ET
Apple Inc. AAPL -0.38% Apple Inc. U.S.: Nasdaq $97.99 -0.37 -0.38% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 188.39M AFTER HOURS $97.72 -0.27 -0.28% Sept. 9, 2014 7:59 pm Volume (Delayed 15m) : 1.46M P/E Ratio 15.73 Market Cap $588.97 Billion Dividend Yield 1.92% Rev. per Employee $2,214,380 09/09/14 Apple Boss Makes His Boldest B... 09/09/14 Health-Care CIOs Spot Apple Wa... 09/09/14 Amazon Loves Government More quote details and news » is plunging into the world of mobile payments, lending legitimacy to a field that has dashed hopes of some of the biggest technology companies.
The company's new Apple Pay service, integrated with the new iPhones and a digital watch announced Tuesday, is designed to allow users to buy merchandise, scan tickets and other actions by waving their mobile device in front of a reader.
Apple said it hoped to speed up the checkout process and, ultimately, to replace physical wallets for U.S. consumers. The service uses a technology known as near-field communication that works by transmitting a radio signal between the device and a receiver, when the two are fractions of an inch apart or touching.
"Apple Pay will forever change the way we buy," boasted Chief Executive Tim Cook as he announced the service at a presentation in Cupertino, Calif., near the company's headquarters.
Apple also may have found a new revenue stream in rolling out the payments service.
The card-issuing banks have agreed to pay a per-transaction fee to Apple to be included on the phone, according to people familiar with the situation. While the amount of the fee couldn't be determined, banks believe that cost will be offset by the number of transactions that consumers make on the phone. The banks collect fees from merchants on every credit and debit-card transaction.
Apple is promising more-secure transactions than the plastic cards most consumers use today. That will be welcome news to consumers grown weary from a series of high-profile breaches at Target Corp., Home Depot Inc. and others that have potentially exposed tens of millions of accounts.
Apple will require a thumbprint scan on its new iPhone 6 smartphone to make the tap-and-go payments—meaning a stolen device can't be used for a shopping spree. It wasn't immediately clear how Apple would authenticate payments on the smartwatch.
The move toward paying with just a phone is the latest development in an industry that once relied on carbon paper and manual processing machines known as "knuckle busters." Credit cards and debit cards have steadily eclipsed cash and checks, representing more than half of retail goods and services purchased by Americans since 2003.
Merchants, payments companies and public transportation authorities have long hoped near-field communication would catch on to speed transactions.
For retailers, the promise of mobile payments has been in merging consumers' online spending habits with their shopping in brick-and-mortar stores. The data culled from the Web can help merchants better tailor coupons and plan inventory, a reason that pure Web retailers like Amazon.com Inc. AMZN -3.68% Amazon.com Inc. U.S.: Nasdaq $329.75 -12.59 -3.68% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 4.60M AFTER HOURS $329.76 +0.01 +0.00% Sept. 9, 2014 7:57 pm Volume (Delayed 15m) : 46,632 P/E Ratio 845.51 Market Cap $158.17 Billion Dividend Yield N/A Rev. per Employee $697,016 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Overheard: Alibaba May Make a ... 09/09/14 Corporate Watch: News Digest More quote details and news » are both feared and envied by physical retailers.
Customers have been reluctant to switch from swiping with their plastic credit cards, in part because it is easy and because not many merchants yet accept NFC-based payments. But Apple, with its glittering new iPhone and smartwatch, brings a certain sexiness to payments.
"When a company like Apple makes a move to enable a new experience it becomes more impactful," said Matt Dill, senior vice president of innovation and strategic partnerships at Visa Inc. V -0.69% VISA Inc. Cl A U.S.: NYSE $214.28 -1.49 -0.69% Sept. 9, 2014 4:01 pm Volume (Delayed 15m) : 1.81M AFTER HOURS $214.15 -0.13 -0.06% Sept. 9, 2014 6:22 pm Volume (Delayed 15m) : 20,727 P/E Ratio 24.47 Market Cap $134.45 Billion Dividend Yield 0.75% Rev. per Employee $1,310,110 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Sure, It's Apple and the iPhon... 09/04/14 Credit-Card Industry Ramps Up ... More quote details and news »
But other giants have struggled. Google Inc. GOOGL -1.61% Google Inc. Cl A U.S.: Nasdaq $591.97 -9.66 -1.61% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 1.55M AFTER HOURS $591.90 -0.07 -0.01% Sept. 9, 2014 7:58 pm Volume (Delayed 15m) : 24,770 P/E Ratio 30.07 Market Cap $402.91 Billion Dividend Yield N/A Rev. per Employee $1,321,030 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Websites to Protest Net Neutra... 09/09/14 Apple Unveils Smartwatch, Firs... More quote details and news » plowed millions into its Wallet mobile-payments initiative, also relying on NFC in smartphones. But the company's reach was stifled because it was limited to Sprint devices and only a small number of retailers accepted the tap-and-go payments.
Others that have had mixed results in mobile payments include eBay Inc. EBAY -2.77% eBay Inc. U.S.: Nasdaq $52.73 -1.50 -2.77% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 20.01M AFTER HOURS $52.52 -0.21 -0.40% Sept. 9, 2014 7:50 pm Volume (Delayed 15m) : 219,162 P/E Ratio N/A Market Cap $67.31 Billion Dividend Yield N/A Rev. per Employee $510,358 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Rakuten to Buy Ebates for $1 B... 09/09/14 As Agriculture Swoons in Droug... More quote details and news » 's PayPal, Square Inc. and Softcard, a joint venture of wireless carriers formerly known as Isis.
A factor in Apple's favor is the company has signed on some of the biggest payment networks and credit-card issuers, including Visa, MasterCard Inc. MA -0.21% MasterCard Inc. Cl A U.S.: NYSE $76.07 -0.16 -0.21% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 3.76M AFTER HOURS $76.02 -0.05 -0.07% Sept. 9, 2014 7:39 pm Volume (Delayed 15m) : 381,964 P/E Ratio 27.36 Market Cap $88.27 Billion Dividend Yield 0.58% Rev. per Employee $1,084,510 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Sure, It's Apple and the iPhon... 09/07/14 Programatic Ad-Buying Tactics ... More quote details and news » and American Express Co. AXP -1.16% American Express Co. U.S.: NYSE $87.90 -1.03 -1.16% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 3.98M AFTER HOURS $88.13 +0.23 +0.26% Sept. 9, 2014 7:52 pm Volume (Delayed 15m) : 42,692 P/E Ratio 16.71 Market Cap $93.07 Billion Dividend Yield 1.18% Rev. per Employee $566,083 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Book Review: 'I'll Drink to Th... 09/09/14 Corporate Watch: News Digest More quote details and news » , as well as a host of high-foot-traffic retailers and restaurants such as McDonald's Corp. MCD -1.52% McDonald's Corp. U.S.: NYSE $91.09 -1.41 -1.52% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 9.63M AFTER HOURS $91.24 +0.15 +0.16% Sept. 9, 2014 7:55 pm Volume (Delayed 15m) : 161,456 P/E Ratio 16.38 Market Cap $90.83 Billion Dividend Yield 3.56% Rev. per Employee $64,315 09/09/14 Apple Unveils Smartwatch, Firs... 09/09/14 U.S. Stocks Extend Losses 09/09/14 McDonald's Sales Woes Continue... More quote details and news » , Walgreen Co. WAG -0.56% Walgreen Co. U.S.: NYSE $62.61 -0.35 -0.56% Sept. 9, 2014 4:02 pm Volume (Delayed 15m) : 7.62M AFTER HOURS $62.43 -0.18 -0.29% Sept. 9, 2014 7:57 pm Volume (Delayed 15m) : 49,022 P/E Ratio 21.08 Market Cap $60.23 Billion Dividend Yield 2.16% Rev. per Employee $303,532 09/09/14 Can Apple Solve Riddle of Mobi... 09/09/14 Apple Unveils Smartwatch, Firs... 09/09/14 Strong Support for Congression... More quote details and news » and Macy's Inc. M -0.35% Macy's Inc. U.S.: NYSE $60.43 -0.21 -0.35% Sept. 9, 2014 4:00 pm Volume (Delayed 15m) : 2.99M AFTER HOURS $60.43 0.00 % Sept. 9, 2014 6:41 pm Volume (Delayed 15m) : 59,151 P/E Ratio 14.74 Market Cap $21.41 Billion Dividend Yield 2.07% Rev. per Employee $162,458 09/09/14 Apple Unveils Smartwatch, Firs... 08/20/14 Stocks to Watch: Lowe's, Ameri... 08/20/14 Macy's Reaches Settlement on R... More quote details and news »
"This should be a very natural extension of smartphone technology," said Gil Lauria, a Wedbush Securities analyst. "Imagine walking through Macy's and getting an offer for 15% off sent right to your phone and then being able to apply that just by flashing your phone at the register."
For now, shoppers who use cards issued by Discover Financial Services Inc. DFS -0.94% Discover Financial Services U.S.: NYSE $62.94 -0.60 -0.94% Sept. 9, 2014 4:04 pm Volume (Delayed 15m) : 1.97M AFTER HOURS $62.94 0.00 % Sept. 9, 2014 4:21 pm Volume (Delayed 15m) : 18,739 P/E Ratio 12.34 Market Cap $29.35 Billion Dividend Yield 1.53% Rev. per Employee $669,168 09/09/14 Can Apple Solve Riddle of Mobi... 08/28/14 Discover Credit Card Has Risen... 08/22/14 Credit-Card Comparison Sites U... More quote details and news » won't be able to use the Apple payment system. Discover isn't part of the initial release, although the card company is in discussions with Apple to add Discover cards to Apple Pay in the future, a Discover spokesman said.
An Apple spokeswoman didn't respond to a request for comment.
Still, industry observers estimated it could be many years before consumers can ditch their wallets altogether. Payments using NFC technology will nearly double this year to $8.2 billion, but still make up just 2.5% of total mobile payments, according to market researcher Gartner.
In addition to relying on NFC and a fingerprint scanner, Apple also is boosting security by embedding a technology in the phone that replaces cardholder information such as account numbers and expiration dates with a unique series of numbers that validates the customer's identity. If a retailer's central payments system is hacked, the information would be much more difficult for thieves to use.
Write to Greg Bensinger at greg.bensinger@wsj.com and Robin Sidel at robin.sidel@wsj.com
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