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Apple Puts Banks Squarely At The Center Of Mobile Payments

Like many, I’ve long held that nothing is broken with plastic cards for instore payments and made the case for mobile wallets to stick to gift, loyalty, ID and other forms of non-payment cards (see Mobile Wallets Should Fix What’s Broken – And It Ain’t Payments).

Until I read about Apple Pay:

“Every time you hand over your credit or debit card to pay, your card number and identity are visible”.

Coming as it did on the same day that Home Depot made the official announcement that nearly 60 million payment cards were breached at its stores, Apple’s statement suddenly sounded ominous.

By combining existing features and apps like Touch ID and Passbook with new iPhone 6 enhancements like NFC, Device Account Number and a transaction-specific dynamic security code, Apple Pay does make a convincing case that it solves the data breach problem that’s becoming increasingly common with plastic cards in the USA. (For the record, I’m personally a happy Android user who has no plans to switch to iPhone.)

However, memories are short. Better security alone won’t convert even the most zealous FanBoy from plastic to Apple Pay. But some of its other characteristics might help Apple drive a behavior change that has eluded many other mobile wallet providers so far:

  1. Captive audience of 900 million iTunes users: “To get started, you can add the credit or debit card from your iTunes account to Passbook by simply entering the card security code.”
  2. Ease of onboarding: “To add a new card on iPhone, use your iSight camera to instantly capture your card information.”
  3. No need to fumble around after reaching the store checkout to find the wallet app or locate the merchant on it: “There’s no need to open an app or even wake your display”
  4. No need to manually select one card out of many: “The first card you add automatically becomes your default payment card.”
  5. No loss of privacy: “Apple doesn’t save your transaction information.” “Apple doesn’t store the details of your transactions.” “…your information stays where it belongs. With you.”

Since Apple Pay is not yet available, I’m left with quoting from Apple’s website (http://www.apple.com/iphone-6/apple-pay/) to illustrate the features that enable its above mentioned benefits.

On the whole, Apple Pay comes across as something intended to improve the user experience. That fits in right with what Apple generally does. This strategy has worked in the past to delight customers, strengthen the ecosystem and bring more converts to Apple’s fold. There’s no reason why it shouldn’t work in the future.

One more thing…

In eschewing the much-expected iWallet monicker, Apple has clearly positioned Apple Pay as a feature and not as a mobile wallet product or a mobile payment platform. By highlighting that it “works with most of the major credit and debit cards from the top U.S. banks” and sprinkling its keynote and website liberally with logos of CHASE, Wells Fargo and other banks, the tech giant has put card networks and banks right at the center of its entry into mobile payments. I didn’t hear any posturing from Apple about becoming an issuer or disintermediating banks from the payments ecosystem.  Call me naïve but, all in all, Apple seems to be happy about delivering a superior CX and selling more products in the process.

Actually, yet another thing…

I wonder how Apple plans to bring merchants onboard. After all, unless they install contactless terminals, Apple Pay will become a damp squib for instore payments. For years, retailers have been hearing about how mobile wallets will give them a wealth of information about customer identity, demographics and purchase history, using which they can run targeted offers and drive sales uplift. Against that backdrop, merchants might be a little shaken by Apple’s declaration that, when the payment is made with Apple Pay, the cashier won't know the consumer's name or card number. Something tells me we haven’t heard the whole Apple Pay story yet. By October, which is when Apple will make Apple Pay available in the USA, can we expect a few announcements around iBeacons, lower interchange fees and other retailer-side benefits?

How many banks can you spot?
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Comments: (9)

A Finextra member
A Finextra member 12 September, 2014, 04:16Be the first to give this comment the thumbs up 0 likes

I think is trying to intimidate banks by the sheer size of its iTunes customer base. It telling banks (issuers ) that if you don't join us and support apple pay u might loose your customers because your customers would choose apple over you. It's probably working because as I understand banks would have to pay a small part of their interchange to Apple.  No bank would agree unless they feel threatened. 

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 September, 2014, 08:41Be the first to give this comment the thumbs up 0 likes

@Anon:

TY for your comment. Considering that Apple is not a bank and Apple Pay is not a credit card, I don't see how Apple can tell banks, "your customers would choose Apple over you". Put simply, without Apple Pay, my credit card will continue to work everywhere as before. Without my credit card, Apple Pay won't even begin to work anywhere.

That said, aggregators / intermediaries use a strategy that warrants notice: Sign up 2-3 marquee companies (say Bank A, Bank B and Bank C) to their service, even without any charges, if it comes to it. Go to other companies in the same industry and arm twist them, "Hey Bank P, Q, R: Sign up for our service at this price or risk losing your business to Banks A, B, C who have already signed up with us." This is an old trick, no matter whether Apple has used it with Apple Pay or not. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 September, 2014, 10:39Be the first to give this comment the thumbs up 0 likes

@Anon: 

I forgot to mention that none of the cards on iTunes are issued by Apple.

According to this post on Finextra (http://www.finextra.com/blogs/fullblog.aspx?blogid=9932), there could be a solid business case for banks to share some of their interchange with Apple while supporting Apple Pay. Therefore, there needn't be any form of intimidation involved if they've decided to do so.

A Finextra member
A Finextra member 13 September, 2014, 04:07Be the first to give this comment the thumbs up 0 likes

How will Appy Pay provide merchants with customer identity and demographics? By customer identity do you mean a communicaton via the mobile device? 

A Finextra member
A Finextra member 13 September, 2014, 11:03Be the first to give this comment the thumbs up 0 likes

In ten years' time Apple Pay will have been well established globally. The effect of this assumption is that cashless, mobile, plastic-less, frictionless, and contactless payments will be ubiquitous. It is a reasonable prospect that Apple knows what it is doing in order to get Apple Pay established pretty well globally. Given these assumptions, we will look at iPhone 6 with its inbuilt NFC capacity as an important catalyst towards a future cashless society. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 13 September, 2014, 12:19Be the first to give this comment the thumbs up 0 likes

@JohnC: TY for your comment. In many parts of the world, it requires a LOT of cash to just buy an iPhone 6, so we'll see... :)

@RG: As things stand, Apple Pay will NOT provide customer identity to merchant.  

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 13 September, 2014, 12:42Be the first to give this comment the thumbs up 0 likes

Here's an interesting story in NYT about how colleagues used a green apple to signal JPMC's CFO that she could start talking about the bank's involvement in Apple Pay during a financial conference in NYC, as the Apple keynote was still in progress in Cupertino:  

http://dealbook.nytimes.com/2014/09/11/banks-did-it-apples-way-in-payments-by-mobile

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 April, 2015, 13:37Be the first to give this comment the thumbs up 0 likes

I couldn't have said it better:

Apple Pay Is Just a Big Giveaway to Credit Card Companies

(https://hbr.org/2015/04/apple-pay-is-just-a-big-giveaway-to-credit-card-companies)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 February, 2016, 18:24Be the first to give this comment the thumbs up 0 likes

This just out:

https://www.finextra.com/newsarticle/28504/chinese-banks-charged-half-the-fees-levied-by-apple-pay-on-us-banks

Banks in Canada and Australia have not signed up with Apple Pay. When last heard, they haven't lost any customers.

Apple has been able to sign up banks in China only after waiving fees for 2 years.