$AAPL - Apple Pay, Passbook Could be 'Very Innovative And Disruptive'

In a note to clients on Tuesday, Jim Suva of Citigroup described $AAPL - Apple Inc.'s mobile payment system, Apple Pay, and Passbook as potentially being "very innovative and disruptive to many everyday user experiences."

According to the analyst, Apple's strength lies in its ability to monetize the payment system. The authentication, security and contactless mechanism could drive incremental "iAd" revenue through click to pay buttons. Additionally, an integrated ecosystem with iBeacon could result in special offers being sent to users in retail locations.

Suva adds that Apple's potential isn't limited to only payments. In fact, the technology could be expanded and used within home and office entry, automobiles and keyless hotel rooms. The potential exists for Apple's technology to even act as a replacement of driver's license and health cards.

Longer term, Apple could enter agreements with financial institutions for FDIC insurance, payment processing, money transmission and co-branded credit cards with loyalty benefits.

"Our analysis reveals that Apple is able to derive the most economics from getting a cut of credit/debit transactions that are enabled through Apple Pay as well as driving incremental revenues through the burgeoning mobile advertising network."

Suva does note that investors shouldn't expect Apple to report any earnings per share upside from Apple Pay for the time being. Future upside is however possible and depends on the timing and success of its future uses, according to Suva.