Apple can bank its winnings

News that Apple's cash pool increased by $US6.1 billion to $US65.8 billion in the March quarter has analysts speculating what the tech giant might do with the money.

Horace Dediu at Asymco has put Apple's ample capital reserves in perspective for investors, calculating the cash is worth half of Google's entire enterprise value, and more than Nokia, RIM and Motorola Mobility's market caps put together. Apple could stop selling tomorrow and run for seven years on its current cash reserves.

And by Dediu's reckoning, the funds are big enough to place Apple's CFO in the top 100 largest fund managers in the world and make it larger than any hedge fund manager.

That kind of cash delivers serious choice. Investors hoping for a special dividend or share buyback have been disappointed by Apple in the past, and although hefty acquisitions have been hinted at, antitrust issues are likely to be a concern.

Are these the perfect conditions for Apple to enter banking?

Apple chief Steve Jobs has said the cash could be used to 'make something big and bold a reality'.

Beyond being big and bold, a move by Apple into the business of banking fits with the company's platforms and applications business. And it wouldn't need to look or behave like any bank most people are familiar with.

Using its cash to acquire a banking licence would give Apple power over the lucrative payments business, currently dominated by Visa and MasterCard.

Apple currently clips the ticket for every song, game and media application downloaded to its platform, but what if it could also generate revenue from the payments business powering those downloads?

And forget Apple Bank. There would be no need for Apple to offer retail banking services. Apple could model itself on wholesale banks like The Bancorp Bank, and then open up its platforms to start-ups looking to trump banks, and developers building banking apps.

In the US The Bancorp Bank provides the regulator-friendly platform required for innovative group payments outfit WePay and mobile payments start-up Obopay to compete with PayPal, without actually having its own banking licence.

The Bancorp Bank is certainly not a household name, but last year it processed more than $US2.6 billion in merchant credit card transactions.

The timing could also be perfect when you consider speculation Apple will eventually embrace Near Field Communications (NFC) technology, enabling true mobile payments. With every new release of the iPhone, hopes have risen Apple will include chips in the device to work with the contactless payment terminals popping up in stores throughout the world.

While Apple is yet to come to the party, other companies have emerged with interim solutions, from stickers to plastic jackets for iPhones containing NFC chips. Among the players in this space is payment start-up Square, which was set up by Twitter co-founder Jack Dorsey.

Square offers a small, and, you guessed it, square device that can be plugged into the headphone jack of an iPhone and used for swiping credit and debit cards.

Last month Visa made a strategic investment in Square, adding to the $US27.5 million of funding it received in its latest round of capital raising. Square has now shipped nearly 350,000 card readers.

Apple is no doubt watching with interest.

In March the Wall Street Journal reported Google was working with Mastercard, Verifone and CitiCorp to develop its contactless payment system for Android.

The common theme in contactless payments partnerships to date had been the inclusion of a banking partner and telco. If Apple could avoid partnering with a bank it would be at a distinct advantage to payments competitors, including Google.

Google has payments ambitions of its own with its Checkout service, but its platform has not yet been widely adopted by merchants. PayPal remains the sector leader with more than 230 million accounts worldwide.

In January Apple's App Store hit 10 billion downloads and today Apple has more than 200 million iTunes accounts.

It's enough to make any banker shudder.

Charis Palmer is the editor of Technology Spectator, a new site coming soon from Business Spectator. Register here for news of the site's launch and other stories like this.