Five strengths of Apple Pay (and one ambiguous feature)

Almost three months after Apple Pay’s official launch there is still a lot of discussion whether it is champion of mobile payment race or just another niche project. I would like to recommend an important voice of Chris Skinner – well known digital banking evangelist. Chris’ recent posts on The Financial Services Club's Blog pointed several reasons for believing in future Apple Pay’s success. Needless to say I am in the same group of believers as Chris Skinner and others. Michael Bolton (www.huffingtonpost.com) calls Apple Pay “Real Killer App” and predicts it leads to Uber-ization of local retail services. At the sime time Apple Pay can disrupt in-device mobile payments creating something like Facebook connect for cross-platform authorization and payments. Great opportunity for application developers and awesome (yes, exactly, awesome) facilitation for mobile customers and merchants.

What makes Apple Pay strong?

Generally Chris’s reasoning is based on the same arguments I used while disagreeing with UBS doubtful report on Apple Pay. Briefly it is about five features of the solution which put it far ahead current competition.

1. Already enrolled iTunes user base is almost 1 billion members. It means that Apple pay is easily available (or will be available when introduced worldwide) for the biggest target group in the history of mobile payments
2. Apple's made it much easier, fancy and better than any other payment, mobile or financial company. It’s core Apple’s competence to make products and services extremely customer friendly. Think about iPod and iTunes (digital music distribution and player), iPhone (mobile phone with web access), iPAd (touchscreen device “between” phone and computer), AppStore (mobile software distribution). Everything somehow existed “before Apple”. But it was Apple which delivered disruptive value to customers.
3. Secure combo PIN plus TouchID As payments requires highest level of trust and safety Apple’s invented exceptional solution of biometrics and numeric authentication. What’s more – this solution is easy to use, looks intuitive and innovative at the same time. Unbeatable for now.
4. NFC incorporated seamlessly to the service and that’s because of unique ecosystem. Apple delivers both – hardware and software components of the payment and keeps full control over them. It also decided to cut other functions of NFC technology (remember – iPhone has no radio receiver and memory card slot) to obtain powerful simplicity and convenience
5. The history of unsuccessful mobile wallets including projects of such giants as Google or Visa make customers waiting for really convenient service. Digital customers know that mobile wallet could be great thing for them, but they couldn’t find satisfactory solution on the market. Apple Pay meets their expectations and this is, probably, the most important strength of it.

What about fees?

The major concern about Apple Pay potential is a fee Apple would like to take. This way of monetization belongs to the old word of traditional payment cards and pre-mobile business models. The global trend is to decrease intermediate fees taken by operators of payment systems and mobile world is much about gratuities (financed by advertising) or freemium models.

Advisors and analytics often raises that, compering to existing solutions (especially debit cards) Apple Pay is not cheaper for merchants and brings less profits to issuers. This is obvious disadvantage and could block growth of the system. What’s more this disadvantage is inevitable. Apple is another party involved in the payment process and wants its fee on the top of existing fees.

In my opinion this feature has ambiguous influence. On one side it makes Apple Pay expensive and could slow its pace of acceptance. On the other hand it respects the game rules of payments – there is nothing for free and everybody should make money. It is promising for big players (banks, card organizations) that future payment are based on the profitability model. It is easier to agree to make less money than to make no money at all. And the latter could happen for both parties (i.e. banks and cards) if some other mobile payments became a global standard. I think financial institutions are ready to cede some of their current profits to Apple rather than to newcomers of payment markets. Anyway Apple is just electronic gadget producer and merchant, not direct competitor for banking and payment giants.

Facing threat of being out of the future payments card organizations and banks will accept lower profitability of Apple solution. Because Apple’s approach guarantees them to survive as the payments operators.

Edit: Apple Inc. remains major inspiration for my posts*, contributing to ca. 10% of all my articles published so far.

Linguistic disclaimer

I have written this text in English. It is possible you find it illogical, offending, unclear or too simplistic. It does not mean to be that way, so please blame it to my imperfect English skills. I am neither native nor perfect English speaking person . If you want to be helpful, do share your grammar, spelling, style and any other remarks with me. I would appreciate any contributing comment, especially if it came from native speakers.

* more about the ways Apple's activities, products and leaders made me inspired - here