From Tech Giant to Consumer Bank?

05 January, 2015 by Admin

The iPhone 6 and Apple Watch stole the show in Apple’s latest announcement, but the actual revolutionary change was Apple Pay. Banks, carriers and credit card companies have been struggling to find a solid model for Mobile Payments over years. Apple Pay could close the puzzle as they have every ingredient to make Apple Pay the new standard for consumer payments.

Mobile Payment is not about a solid business model, it’s about Seamless Technology, User Experience, Trust and Approachability
Tim Cook: “Most people that have worked on mobile payments have started by focusing on creating a business model that was centered around their self-interest instead of focusing on the user experience”. The technology and endless possibilities for a business model are already around for more than a decade. Until now, no one managed to make Mobile Paying a success. Earlier initiatives like Google Wallet, Softcard or Paypal clearly missed the seamless technology, approachability and user experience. You had to unlock your device, open a dedicated ‘payment’ app and also register your payment information like a credit card. Here’s where Apple wins the game, basically all you need is your finger. Besides the seamless technology and approachability, Apple has a great track record of mass acceptation for new technologies, which creates a sense of trust with consumers.
Apple’s goldmine: 800 million loyal users with registered payment info
800 million users are set to start with Apple Pay without any new subscription or setup when they own a NFC enabled iPhone or Apple Watch. Apple Pay is integrated in iOS8 and your payment information is already registered with your iTunes Store account. Furthermore, credit card companies allowed Apple as the first partner to let consumers load a new payment card by simply snapping a picture of the card. At the launch in October consumers will already be able to use Apple Pay in over 220.000 locations in the US. Apple Pay is using a unique standard for NFC (Near Field Communication) payments which enables each retailer with NFC enabled PoS (Point of Sale) system to work with Apple Pay. Despite the usage of this standard, NFC enabled PoS devices are not yet a standard for retailers. Therefore the success of Apple Pay is also depending on the implementation and acceptation of NFC enabled PoS devices with retailers.
Privacy & Security, the most important ingredient to a sustainable solution
In contrast to Google, Apple doesn’t want or need to store your transaction information. It will not even handle your transaction, but instead make a seamless bridge from your mobile device to your bank. Privacy has really become a unique selling point for Apple, being really transparent by exactly explaining how your personal data is handled and how Apple does its very best to protect your data (https://www.apple.com/privacy/) The introduction of TouchID always had a greater purpose: replacing your payment card authentication with your finger. With the introduction of the iPhone 6, Apple also introduced a so called ‘secure element’, simply explained as a hardware component which is used to securely store highly private data as your fingerprints or a credit card number. The fact that Apple is not interested in your transaction data combined with a number of serious security measures creates a rare situation that could make us all trust the security and privacy of Apple Pay, which is again one of the ingredients to success.
US versus EU: A different game to play
Apple Pay supports credit and debit cards from the three major payment networks (American Express, MasterCard and Visa) representing more than 83%¹ of the credit card purchase volume in the US. This is great for US consumers, but for other parts of the world it is a very different story. In Europe people are mainly using debit cards from different (smaller) banks. A good thing and possible success factor is that Apple Pay already supports debit cards. Still, the question is whether EU banks will also work with Apple and support payments with Apple Pay. From a different perspective, iPhone users are mainly people with a middle to high income in the age group of 18-30. This group is also typically owning a credit card or at least having payment information linked to their iTunes Store account. Another difference and possible resistance for acceptation is Apple’s smartphone market share in Europe. Android has a much larger piece of the market and is still growing. The big questions remain if, how and when Apple Pay will make its way to Europe?
How Apple will become your new bank without even noticing
Apple made an exclusive deal with the majority of the largest transaction companies. It will receive 0.15%² of all transaction made with Apple Pay. 0.15% may seem a very small share, but it has great potential with an existing $ 390 Billion³ in retail transactions and still an enormous number of replaceable offline payments. As Apple will take care of your transactions it can also become a risk for consumer banks as consumers will more and more loose contact and loyalty with their bank. When Apple Pay really takes off, it could be handling all your current online as well as offline payments and basically become your new digital bank!

For more information, contact Joey Janssen

¹ The Guardian, http://www.theguardian.com/technology/2014/sep/09/apple-iphone-6-nfc-payment-system
² Financial Times, http://www.ft.com/
³ YCharts, https://ycharts.com/indicators/retail_sales