24 March 2017
Daniel Eckstein

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Daniel Eckstein - Abrantix AG

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Apple Pay, the biggest reseller of Visa and MasterCard

25 September 2014  |  6052 views  |  8

Everybody has been watching and waiting for the announcement that Apple will enter the payments market, and …… drum roll …. they’ve just announced Apple Pay!  Cool name, but what is it and will it rock the payment industry?

First the good news. With Apple, one of the biggest technology inventors has just entered the payment market. Along with the fresh ideas this should bring into the industry, it might also generate some speed within technology circles and therefore get new ideas out into the market a little faster.

Now the bad, or ‘not so good news’. Apple Pay is entirely based on credit cards. That means it is not a new payment method.  It looks more like Apple will become one of the biggest resellers of the credit card industry. They will only facilitate the use of credit cards, and in our industry players like that have a name: payment facilitators.

From my point of view payment is when money (value) changes its owner. This is the business of the credit card industry.  Apple doesn’t do anything here. Therefore I think Apple Pay is not a payment system. However, Apple is very innovative so it might invent a new payment system soon. If Apple begins transferring money directly between iTunes accounts, things will change dramatically but this would mean war against the banks. I just can’t see that scenario happening though, since all the big companies depend on good relations with the banks.

Until then the big technology companies are not really payment innovators, they just help credit cards to become stronger and even more established as the number one payment method used for shopping, internet, mobile, etc.
Meanwhile we will see how Apple Pay will be used by the population of the world (not only by the payment experts).  I’m not sure if it’s cooler to wave your mobile phone instead of waving, or even swiping, a card. I will ask my mother if she can explain this to me.

Please share your opinion. Does your mother understand the benefits of Apple Pay? Or is there any benefit?

 

TagsPaymentsInnovation

Comments: (9)

A Finextra member
A Finextra member | 26 September, 2014, 10:04

Absolutely, Apple Pay is a facilitator and not a payment system. Apple Pay will enhance the customer experience and deliver transaction growth but not challenge payment systems and banks.

Intense and growing regulation is why technology companies such as Apple do not enter the market as financial institutions themselves.

Payment habits have a huge generational bias and tend to be influenced by what you learn and use from your early teens. Your children will be in a better position to explain why they would wave a mobile phone rather than a card...:)

 

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 26 September, 2014, 17:31

@DanielE:

Absolutely. Like I observed when SQUARE was launched - it moved hitherto cash transactions to bank-issued credit cards and thereby expand the pool of transactions from which banks could earn interchange revenues. 

There are rumors that banks are planning to “outsource” the task of authentication of all Apple Pay transactions to Apple. While the rumors further say that banks would pay Apple 20 - 50 bps of transaction value for this job, the point is moot: Since “Apple doesn’t know what you bought, where you bought it, or how much you paid.”, it doesn't know the transaction value. Therefore, what's to stop the card networks / issuers from telling Apple that the consumer paid $5 for something when they really paid $500, as Ron S has rightly asks here? Who knows, Apple Pay may give one more chance for banks to go laughing all the way to the bank!

@HarinD: I agree that payment habits - like many other habits - have huge generational bias. Having observed a generational habits in Desktop Email v. WebMail and a few other areas, if our children wave a mobile phone rather than plastic, it'd be because "they've always done that". I don't think they'd be able to explain why.

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Daniel Eckstein
Daniel Eckstein - Abrantix AG - Zurich | 27 September, 2014, 08:58

Totally agree with both of you. And I also totally agree that the young generation will use the phone as a payment device, or a card replacement. I am just always believing, that someone will creat a new payment method. But this will not happen as Harin explains. Tech companies don't want yo become financial institutions and bank don't want tech companies in the payment business.

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A Finextra member
A Finextra member | 09 October, 2014, 12:49

Personally I would like to understand the User experience before i make my mind up on ApplePay.  The revenues they will generate from this initiative will be a rounding error in their overall finances for some time, so a lot of risk for little return. I think analysts and the market needed to see 'Something' With their market position I would have expected either something a more innovative than this, or alternatively Apple simply saying that as the payments infrastructure wasnt fundamentally broken in the USA - they couldnt actually fix very much....  currently the overlapping venn diagrams of enabled customers and enabled merchants are tiny.... Does anyone know what the maximum transaction limit is for Apple pay?

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 09 October, 2014, 13:57

@Anon:

  1. I don't remember the exact figures but I think the total addressable market of card transactions in USA is US$ 5T per year. According to rumors, Apple will get 20 bps of transaction value for carrying out authentication. That translates to > US$ 10B of fee income, which I'm guessing will be significant even for a giant of the size of Apple.
  2. I'm no great enthusiast of replacing plastic but, as mobile wallets go, Apple Pay is easily the best, for reasons I'd highlighted in http://www.finextra.com/blogs/Fullblog.aspx?blogid=9924.  
  3. With just 220K merchants out of a total of 10M card accepting merchants in USA currently equipped to accept Apple Pay, one of the two Venn diagrams is itself tiny!
  4. Apple is claiming that Apple Pay is *more secure than plastic*. Given the company's stature, I expect maximum translation limits to soon apply to plastic!

 

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A Finextra member
A Finextra member | 09 October, 2014, 14:05

are you assuming Apple get 20bps of everything?  I believe the projections are for apple to get  $300M per annum in fee income - if so, thats not significant to apple - they needed the 'Cool' factor more than they needed the money.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 09 October, 2014, 15:16

My figure is of addressable market, which is always computed without reference to any particular player's market share because there's nothing in theory preventing any player from gunning for the whole market. In actual practice, however, Apple may end up with anything - including nothing - if the cynical prediction about card network behavior I'd made in my earlier comment comes true.

Outside the circle of finsurgents and digerati, I don't see anything cool about paying with Apple instead of plastic card. But what do I know? I'm not even a Fanboy!

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 10 October, 2014, 16:59

There we go:

Icahn bullish on Apple Pay prospects

Apple Pay is likely to prove a money spinner, generating revenues of $2.5 billion in 2017 in the US alone, predicts activist investor Carl Icahn. http://www.finextra.com/news/fullstory.aspx?newsitemid=26564

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A Finextra member
A Finextra member | 10 October, 2014, 17:04

he owns 53M shares in apple what else is he going to say?  he has every reason to be bullish/hypeish /pump-dump-ish....  Please dont get sucked in by the hype Ketharaman

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