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.
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".
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.
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.
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).
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.
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.
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| (Image taken from the web) |
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.
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