The proof of the Apple pudding - Can Apple Pay make mobile payments popular? (Part 2 of 2)

There are many factors that have been attributed to Apple's potential to make mobile payments popular, and many that forecast its doom. In my last post, I covered what are the key ingredients that have gone into the Apple Pay mobile platform from a technology perspective. But for mobile payments to become popular, and if Apple has to have role to make that happen, it's going to require a lot more than technology.

Not all of what constitutes as Apple Pay technology is new (quite akin to its earlier hit-products). For one, NFC (Near Field Communication) technology has been around for almost a decade (Nokia had launched the first NFC phone in 2006). However, it has not really taken off despite being implemented by various mobile payments players that include heavyweights such as Google Wallet and the (in hindsight, unfortunately-named) ISIS service, now renamed as Softcard that is a joint venture between AT&T, Verizon and T-Mobile. 

Among the various ingredients going into Apple Pay, Apple has made a good start with its tie-up of 220,00 retail outlets that rate among the largest retailers in the US. The nay-sayers highlight that this  is not enough to truly make a difference, given that it constitutes only about 2.4 - 3% of the roughly 7 million to 9 million merchants in the U.S. that accept credit cards. According to an industry analyst, the Apple Pay service would need to be usable at about 20% of U.S. retail locations to reach critical mass of acceptance (though I am not at all clear how that was pegged at 20%). What is clear is that retail acceptance is a crucial link in the payments chain, and gains even greater significance as it has been the sorest point for mobile payment uptake up until now. 

Apple's is clearly acknowledging that the reach and spread of contactless merchants can be a potential Achilles heel. Therefore its timing for the Apple Pay launch around the time that US market is being driven by the move to make EMV cards mandatory by Oct 2015 is interesting and smart, as the EMV move will mean that all card readers at merchant outlets will be NFC reader compliant. With 26 % of merchant terminals forecast to be able to accept mobile payments over NFC by the end of 2015 (source: Mercator), the critical mass of acceptance may be achieved given the necessary push. Driven by the EMV guidelines, 85% of US payment cards are also compatible with the Host Card Emulation/Secure Element features that Apple is using. Thus, the impetus for merchants to move toward contactless payments in the US, which many businesses have been reluctant to do so unti now, is more likely to supported with a matter of the right timing. 

Another important aspect is that the mode of payment continues to rest, atleast for now, on card payments. Worldwide, cards are in themselves considered to be convenient enough and fast enough to use and therefore not compelling enough to move away from. Most importantly, cards have an acceptance from merchants worldwide that can only be a wild dream for today's mobile payments players. A lot of this points us to a classic case of "you can't fix what ain't broken". So for any company to succeed at the mobile payments play, there's got to be plenty more to offer than "speed and convenience".

Many of the in-favour articles cite Apple's recent success in "disrupting" markets - be it for the music industry or touch screen devices. Ofcourse, this is true. In fact, taking from its success with iTunes, the industry is raving about how Apple Pay will tap into Apple's existing customer base with roughly 400 million credit cards tied to its iTunes service. That’s quadruple the amount of payment information Amazon holds, according to Business Insider. (Ofcourse, that Apple Pay is currently limited to the just launched iPhone 6, 6 Plus and Apple Watch may seem like a minor caveat?). 

What may have worked for Apple in music and mobile devices until now, may not necessarily work for mobile payments. One lesson has been that to make mobile payments successful, no one single company can really aim to "disrupt" the payment industry. Rather, the highly fragmented and varied nature of the payments industry today has made a compelling case for a company to take the path of collaboration with all the key stakeholders involved. And, for mobile payments to achieve the necessary critical mass of adoption, it may just be a matter of all stakeholders becoming successful. 

And this may just be where Apple's path could be different from its predecessors in this field. Note some of the parties that Apple has partnered with in advance of its launch of Apple Pay. For starters, Apple's partnership in early September with the big three card processors - Visa, MasterCard, American Express has been a critical piece. Together, these companies represent nearly 83% of the total credit card purchase volume in the U.S., while Visa and Mastercard rule outside US too. By aligning closely with them, Apple is making sure they play a critical role in pushing mobile payments, not just in US, but going forward, outside the US too (MasterCard announced that contactless payment acceptance would become standard in Europe by 2020 for merchants accepting MasterCard and Maestro brands of cards). 

Another important ingredient in the mix is Banks, which in the retail payments scenario act as the credit card issuers, though as some have shown in different scenarios have also been trying to get their customers to pay using the bank's mobile apps. Overall, banks have long been at the centre of payments as all regulated money flows through the banking system. They are also the entity that has the most to lose in terms of payment transaction revenue with drastic changes in the landscape. This has also been one of the primary reasons why banks have not been receptive to or supportive of any initiative that threatens their position. 

Apple's pre launch tie-up with the top credit card issuers in the US including Bank of America, Capital One, Chase, Citi, Wells Fargo, and a strong collection of other banks lined up, is a sign of the banks' faith in Apple to propel users to use their technology in ways not done before, and at the same time address the much needed improved POS security and data privacy concerns. It is also a sign that while banks are aware that Apple will take a slice of the transaction revenue from the payment (Apple may net 15 cents for a USD 10 purchase), there is more to gain for them through a growing world of mobile and online payments.

Add other important stakeholders into the mix, and Apple has the top in-mobile purchase apps, payment card terminal manufactures, app developers all not only striking pre-launch partnership with them but also actively pushing its solution.

(Image taken from the web)

WYSIWYG (What You See Is What You Get) right now on Apple Pay cannot be its entire menu for the future. If anyone one has to truly tap into the power of mobile devices (including their wearable counterparts), we will see a lot more services added based on the user's location, search, information on better deals (including search and deal comparison - in the online as well as offline markets) along with the payment as the final leg of the transaction. Apple's trials with iBeacon along with NFC are indicative we will see more of this with Apple Pay. This will also be when the case is no longer that of working in a "you can't fix what ain't broken" market, but rather succeeding in a "we don't yet know what we can have and what we can do with it" market. And Apple has had one of the best track records of doing that.

To conclude, it is very early days to predict anything. But if as is shown above by Apple's many smart moves, be it on the timing, the technology mix, the partners, Apple may have learned some lessons from just observing all the action in the mobile payments space over almost a decade. And the Apple Pay pudding may just be waiting for all of us to dig into some years from now.

The proof of the Apple pudding - Can Apple Pay make mobile payments popular? (Part 1 of 2)

Amidst all the excess of reviews on the launch of Apple iPhone 6, its Plus version and the Apple Watch, my attention ofcourse has been focused on the Apple Pay mobile payments platform and what it can potentially mean for the mobile payment industry. Having never belonged to the die-hard Apple fan cult (I've only recently moved to an iPhone after years of Android based phones that I used extensively and satisfactorily), I am usually skeptical about all the media hype generated around an Apple launch. 

But given all the action and unmet potential until now in the mobile payments industry (covered in my previous blog), I was keen to take a deeper dive to check if there truly were any interesting enough elements adding the masala to the Apple Pay dish. So here goes my take through a two-part blog post.

To explain Apple Pay very simply, Apple Pay provides a platform for mobile payments both, in the brick & mortar (offline) retail stores, as well as for purchases made in the digital (online) world. 

It wasn't until I saw the demos for various payment scenarios that I was able to truly appreciate how simple and easy it would be for a user to pay using Apple Pay. As a user wanting to make a payment at a store, here's what you would do:

• Once you're done shopping, and are ready to pay, hold your phone near a contactless Point of Sale (POS) terminal. The payment amount from the POS shows up on your mobile device.

• The payment card you’ve set as a default is called up on your iPhone. (If you want to pay by another card, you can pull that up and select)

• Put your finger on the Touch ID on the phone device. And your payment is through (notified via a beep and vibration on your iPhone). 

You've completed all this in a matter of seconds, and without even opening a screen or an app. Contrast this to Google Wallet that requires you to wake up your screen and, in some cases, enter a PIN to complete the purchase. (The last time I remember being this fascinated was when Square had launched its own mobile payment service. Now, amidst news of Square's cash burn and a failed takeover attempt by Apple, it is interesting that Square too will be supporting Apple Pay instead of competing with it head-on).

For a user wanting to make a payment for an online purchase, the experience is similar to the offline one. You select your product / service online (or in-app) and put your finder on the Touch ID to pay. It may go unnoticed to some, but this by itself has the potential to blur the divide between payment for offline purchase (where you swipe your card), and online (where you type in your card details), thus potentially speeding up consumer adoption.

The Apple Watch is supposed to work for Apple Pay in a similar way as the iPhone (I could not view its demo though and there are fewer details available on this yet). You double-click the button next to the Digital Crown and hold the face of the Apple Watch near the contactless reader. However, Apple Watch does not require fingerprint authentication (no Touch ID). But what it does have are skin sensors (that also track your fitness, heart rate etc.) and will tell the watch every time the wearer takes it off. So if you remove your Apple Watch, you'll have to enter your Apple Pay PIN again before you can buy anything with your wrist. Also if you're not watchful enough and if someone does manage to steal your Watch, they won't be able to use it to pay. 

There's quite a bit of neat technology at work below the surface. But in what has become first nature to Apple, the wonder of it is that all of that technology really does not (as it should not) matter to the user. Here's a look at what lies beneath to bring better speed and security of transacting for the consumer - 

NFC (or Near Field Communication, this is present in a tiny radio antenna on your mobile device, and also ofcourse needs to be present in the merchant POS too, this is what makes the two devices "talk" to each other), 

Touch ID (the fingerprint reader that makes the single-touch unlock + identity authentication + transaction completion possible), 

Tokenization (to avoid credit card frauds, this makes sure your credit card information is not transmitted every time you transact. Instead a one-time unique code is generated for every instance of a payment transaction), 

Secure Element (again a measure to safeguard your payment card details, this involves a dedicated chip in your mobile device that ensures that instead of using your actual credit and debit card numbers when you add your card, a unique Device Account Number is assigned, encrypted and securely stored in the chip), 

Passbook (this is an existing Apple feature that already stores your boarding passes, tickets, coupons, etc. With Apple Pay, it now allows you to store your credit and debit cards too by simply entering the card security code), 

iSight (this is the inbuilt camera that instantly captures your card information each time you want to add a new payment card to Passbook).

But the true proof of this Apple pudding has bound to be beyond all that cool technology and even cooler user experience. And whether or not Apple Pay will really be the tipping point for large scale adoption of mobile payments, will require a lot more ingredients cooking in the overall payments ecosystem. 

The next blogpost will cover where the differentiators may lie for Apple Pay to play a determining role for the global payments landscape.

Mobile Payments - a moving goalpost, with lots of goals still to score

As a keen follower of trends in the mobile payments industry for several years, I have been eagerly waiting for the time when the sight of payments made via the mobile phone is as commonplace as the cash or card is used today to make payments (some of my blog posts on previous workplace sites have had gushing references to this). I imagined a world where riding on the promise of speed, convenience and efficiency, large sections of the population would:

• With a few simple taps on the mobile screen, pay utility bills or their children's school fees, make cash gifts...even settle IOUs between friends or split restaurant bills.  

• By just one wave of the mobile, get in and out of public buses and trains.

• By a swipe of the mobile, pay for groceries at the super market, or the hairdresser at the neighbourhood salon, or for the daily coffee dose at their favourite cafe. 

The latest news of Apple's partnership with Visa, MasterCard and Amex, and the expected rollout of its mobile payment platform on its new iPhone (and possibly the iWatch too) has brought the spotlight once again on the action. Here's a snapshot on where the action has been these past few years.

Today, we are seeing mobile phones (and smartphones) becoming mainstream, almost an integral part of daily life for much of the world's population. However, even after a significant amount of investment by several organizations - big and small - and an even larger hype from the media, we are still a far cry from mainstreaming payments on the mobile phones. True action is visible in only selected pockets in certain countries. And to set the right context, the often-cited mobile payments flagship story of M-Pesa is an outlier and exception that has not been successfully emulated in any country other than Kenya. 

The kind of organizations that have made a play for a slice of the mobile payment market is numerous and assorted. Almost every major bank in every country today offers mobile payments. Unfortunately, banks, which have otherwise been at the helm of the payments ecosystem, are grossly lagging behind on mobile payments. While payments can act as the gateway to much deeper financial relationships with their customers, most banks are limiting their mobile payments experience to little more than a view of accounts, transactions, and transfers between accounts.

In addition to banks, a massive potpourri of players have all been actively promoting their mobile payment service including mobile carriers, card companies (e.g. Visa with Visa payWave, Visa Checkout, MasterCard with MasterPass, Amex), P2P and P2B payment service providers (e.g. Paypal, Alipay), money service bureaus (e.g. Western Union, Moneygram), new payment innovators (e.g. Square, Monitize, etc.) and the "non-traditional payment players" such as Google (Google Wallet), Apple (Apple Passbook), Amazon (Amazon Wallet) and even Starbucks which quite successfully runs its own mobile payment service integrating various aspects of the knowledge of the consumer preferences and transaction history, location data, loyalty, etc.

The majority of the services revolve around the concept of the "mobile wallet" which in very simple terms is nothing but a digital version of your physical wallet. It thus is a software application on a mobile handset that functions as a "digital container" for your payment cards, tickets, loyalty cards, receipts, vouchers and other items - all of which may be found in a conventional wallet. Starting from SMS to USSD to WAP / XHTML / HTML5,  we've been seeing contactless mobile payment technologies such as NFC (Near Field Communication), QR Code, 2D barcode as some of the underlying technologies driving some of the services. NFC was touted as the biggest game-changer for contactless payments, but has not really seen an expected uptake. 

With so many players devising and implementing their own strategies, technologies and business models, the mobile payment ecosystem has become highly fragmented and crowded. On one hand, widespread merchant acceptance of any one technology is missing, and on the other, the absence of a distinctive value proposition for the mobile phone as a payment device itself is acting a common barrier to consumer adoption. While worldwide mobile payment transactions are estimated to have totalled $235.4 billion in 2013, a 44% increase from $163.1 billion in 2012, with a projected 38% jump to $325 billion in 2014, the blue-eyed baby of mobile payments - NFC based mobile payments are estimated to account for only 5% of total mobile transaction value. (source: Gartner).

Interestingly, among all the action and media buzz around mobile payments, we may be on the cusp of another digital payments wave. A wave brought on by "wearable technology". The kind of two-way communication with consumers that was made possible by the mobile phone technology is now being explored by the makers of wearable technology. Companies are investing into getting the increasingly "smart" wearables such as watches, glasses, bracelets, rings to also support "wearable payments". 

One of the various projects in this area, an early entrant has been Walt Disney Parks and Resorts' MagicBand, which is a contactless wristband Disney created for its park and hotel patrons to use as a room key, theme park ticket and payment account. In another project,  two students from the Massachusetts Institute of Technology created a ring embedded with an RFID chip commuters can use to pay their fare on the Boston area's bus and subway system. Aware of the drab, or worse outright ugly looks that some of the wearable technologies sport, firms are already sportingly investing to bring sleek and stylish wearables to the market!

Apple's launch of its mobile payments platform next week could be both on the iPhone and iWatch. Maybe it will succeed with consumers and the marketplace in a way that no previous service did. Regardless, while "mobile payments" itself may be a moving goalpost, it remains interesting to see the industry and technologies evolve over the next few years and a lot of goals scored for all entities involved, most importantly for the consumers.