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The true story of Apple’s Tap to Pay

At the start of February, Apple decided to finally enter the payment processing space by officially announcing Tap to Pay - its new system for collecting electronic payments via an iPhone or iPad. Initially only available in the US, it is just a matter of time before Tap to Pay launches in more markets. However, while Apple’s entry into the payment processing space rightly made headlines, the big story that is taking place in payments was overlooked.

The truth about timing

To understand what is going on, it is worth asking a simple but important question; why did Apple launch Tap to Pay now? The reality is that the hardware needed to allow Apple devices to accept payments has been built-in since 2014 when Apple took its first steps into payments and launched ApplePay. While this has been a huge success it is only now, eight years later, that we are getting a sequel with Tap to Pay. Understanding why Apple has decided now is the right time to launch its own payment processing solution is the key to seeing what is really going on.

Right now, payments are undergoing huge levels of innovation as new services and methods are launched to make payment quicker, easier, or enable new features. These new alternative payment methods (APMs) like Tap to Pay, are for the first time providing a real alternative to credit and debit card payments. Alongside the innovation with new payment methods, we are also seeing a growth in consumers’ willingness to try new payment methods. Eight years ago, this was not the case. While new payment methods were still being developed, consumer interest in adopting them was not as high as it is now, thanks to ingrained behaviours and concerns about security.

The big shift that has taken place is the growth of mobile payments like ApplePay and GooglePay. Consumers are now far more accustomed to using their mobile phones to make a payment when in-store or online. The latest data from UK Finance backs this up too, with 17.3 million adults in the UK having registered to use payments on their mobile devices. This is a jump of 75% from the previous year. While part of this jump can be put down to the pandemic, it cannot account for the growth that was seen in the years leading up to it.

In some ways, we are playing catch up to a trend that has already been taking place in other parts of the world. Over in China, AliPay and WePay are the dominant players in the payment landscape as they make up over 94% of all third-party payments. The market share that these APMs have gained shows the potential that exists in other regions.

The arrival of new APMs combined with growing consumer interest is great news for retailers. Having begun the recovery process from the pandemic, each new APM that arrives increases the control and choice retailers have with selecting their payment options.  

Boosting choice and control

While all the excitement around APMs and the increased level of adoption is great news for retailers,  they still need to ensure that the payment systems they select can meet their needs. Tap and Pay, for instance, will work as a payment system for SMEs but has a ceiling for its widespread adoption. The truth is that as businesses expand, mature, and grow, consumer expectations shift. The payment expectations for a local coffee stand are very different to those for a major retailer like Sainsbury’s.

Due to the smaller size of SME retailers, consumers are willing to accept these outletsoffering only one payment option. However, they also expect more options from a larger retailer. In fact, for large retailers, the expectation does a full 180, as consumers demand as many payment options as possible to fit their preferences. Failure to offer the payment method a consumer is looking for damages the customer experience (CX). Large retailers then, still need dedicated payment terminals that facilitate multiple ways for consumers to pay. Meaning Tap and Pay can only be used by very specific sets of SMEs.

Larger retailers, though, can still get involved in the APM story, even if Tap and Pay is not appropriate for them. Already new APMs are arriving that offer exciting features such as instant bank-to-bank transfers between a consumer and a retailer. This method of transaction does not need a payment card and allows retailers to benefit from reduced processing fees. The savings from reduced processing fees can then be passed on to customers as part of a loyalty programme or used to support business growth.

Another feature that APMs can provide are instalment payment plans such as Buy Now Pay Later (BNPL). These types of payments are becoming increasingly popular with consumers, with the global market for BNPL set to be worth $20bn by 2028. Allowing customers to easily spread the cost of large ticket items and buy products sooner than they otherwise could have, they are popular with younger consumers. By offering instalment payment plans at checkout, retailers can drive up sales volumes, while also improving CX with a key demographic.

Another chapter in a far larger story

The real story of the launch of Tap to Pay is the fact that APMs are on the rise. While the days of credit and debit card payments are far from numbered, the arrival of APMs means that retailers have a level of choice and control with their payment systems that they have never had before. The ability to offer new features, improve CX, and reduce processing fees, make APMs an unmissable opportunity for any retailer wanting to stay at the forefront of payment technology. While Apple may have made the headlines with Tap to Pay, it is simply another chapter in the far larger APM story. 

 

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 28 March, 2022, 13:43Be the first to give this comment the thumbs up 0 likes

Per Apple's announcement, Tap to Pay appears to be a new POS form factor rather than a new Method of Payment. I see numerous references in the article to credit card and card networks and zero references to Alternative Payment Methods. While the announcement does make a mention of Apple Pay and Electronic Wallets, the go-to funding source for both is credit card / debit card.  

Pray tell why you think Tap to Pay provides "a real alternative to credit and debit card payments."?

As for your observation "for the first time", I find it even more inscrutable because PayByBank, PayM, Zapp are at least three products that I can readily recall that have supported APMs like A2A in UK during the last 10 years - just that they failed to answer the question "what's in it for consumers to switch to them from credit card?" and failed to go mainstream.

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