Banking on Apple Pay: What’s New, and What Isn’t

There’s become a certain inevitability to Apple’s march into new businesses. The company is unquestionably so innovative, so user-friendly and so attuned to market wants and needs that its momentum seems virtually unstoppable. Apple doesn’t just represent the zeitgeist, Apple defines the zeitgeist.

That’s the only way to consider the most interesting (at least for us) of Apple’s new launches: Apple Pay. The payment system, which is embedded in the newest iPhones and the also-announced Apple Watch, essentially lets consumers pay with a tap of the phone rather a swipe of the credit card. Apple Pay uses near-field communication (NFC) technology to allow mobile phones to communicate with other devices that are close by, a trend that has been closely watched for market growth.

True to form, the company isn’t letting modesty get in the way of its ambition. ”Apple Pay will forever change the way we pay for things,” said CEO Tim Cook, later adding to ABC News that the technology “drives a dagger’ into the heart of traditional payment systems, such as credit cards.

To its credit, Apple Pay looks to have perfect timing. As we’ve documented on this blog, the market is ripe for explosive growth in mobile payments. Retailers ranging from Macy’s to Duane Reade, along with household names like McDonald’s and Whole Foods, among many others, have already signed on to Apple Pay. And even before this high-profile entry, researchers have been predicting that mobile payments will potentially grow from barely $1 billion last year to nearly $60 billion in only four years. By any definition, this kind of change that could have staggering consequences for every corner of the financial services industry.

So is it game over for traditional banking types? Or does the hype does deserve a reality check?

First, let’s be clear that in this case at least, Apple is counting on its brand as much as its innovation to find success. This has happened before: Industry observers with longer memories can remember companies that used the size of their market footprint to keep moving forward. Nearly two decades ago, when Microsoft banked on an unlimited marketing budget to promote the launch of Windows 95, Apple derided the new release as nothing more than Macintosh ’89—with some justification. Sure, Microsoft dominated the arena for a while, but it inevitably lost ground to more innovative rivals. . .like Apple.

In this case, unlike everything from the original Mac to the iPad, there’s not too much that’s dramatically new about Apple Pay. The very idea of contactless payments has been around for a while, and some of its proponents are not exactly tiny startups: Google Wallet has been out for a while now, while companies like Starbucks have their own contactless payment systems in play. Yes, Apple Pay does have a few additional features tied to security and user-friendliness, but that’s a far cry from the innovations of the past. This time Apple isn’t in the lead, it’s playing catch-up. That’s seldom a recipe for success.

More to the point, for Apple Pay to succeed, it will need more retailers to sign on. In one notable example, Wal-Mart is not in the list of Apple Pay participants. That’s always been a problem for mobile payments—the fact that there’s literally a wealth of options, rather than one clear choice. Vendors seem to be waiting for customers, while customers are waiting for vendors.

Could Apple be the one to break the deadlock? It’s certainly possible, but far from a sure thing.

The irony is that there’s one voice missing from this whole discussion, and it seems to be. . .ours. The headlines are chock-full of stories about new payment systems, how there might be a wave of change coming and there are no banking names in the mix. Even though Apple says it will categorically stay out of the transaction, every bit of coverage focuses on the technology companies on one side, and retailers and vendors on the other.

It will be interesting to see what role the financial services industry plays in this exciting transformation. Let’s hope it actually does get to play one.



Written by Staff