Apple Pay: Game Changer? Not in Asia

Apple’s foray into the mobile payment space with Apple Pay is long awaited, by both Apple fans and the industry, but is it a game changer?

Apple Pay is all very warm and seamless in that Apple sort of way. Selected credit is easily slotted neatly into the Passbook linked to each phone, which then enables payments with Apple Pay. There is no messing about opening apps – simply hold the phone near the point of sale, hit the Touch ID, and as Apple itself says, “You don’t even have to look at the screen…a subtle vibration and beep let you know.” Easy!

Is It Catching On?

The initial Apple Pay launch focused on North America, with Apple signing up an impressive array of banks and merchants. Banks such as American Express, Bank of America, and Citibank represent 83 percent of payment volume and big name merchant brands such as McDonald’s and Chevron already offer wide distribution. But the partner lineup is notable for who is absent. Retail giants such as Walmart and Target are betting on their Merchant Customer Exchange (MCX) payment coalition, which raises the possibility of another format war.

Technically Speaking

The big enabler for all of this is that Apple has finally gotten around to putting an NFC chip in its phones. This enables that short secure communication between the phone and the point of sale to confirm the payment. It has also put an extra little chip in the phone to handle the payment and developed an architecture that promises lots of card security and the fact that card details are never actually handed to the merchant, making it safer in many ways than using a normal credit card. Apple is talking up the security of this setup. And rightly so, given general concerns about online payment safety. Interestingly, Apple has taken this a step further with a bold and customer-friendly data privacy model that states that it will not give itself access to the payment transactions and thus deprive itself of all the data-driven marketing opportunities it provides.

While the rest of the industry may not talk about this area very much, like it or not, this data-driven commercialization is pretty fundamental to almost everyone’s business in the future. Apple has also locked other apps out of using the NFC chip. This is being promoted as a strong security feature, but it does also have the effect of locking other wallets out of the phone or NFC functionality. This is possibly something that could backfire if it is maintained; a stance that suggests “use our wallet or get a different phone.”

Offline and Online

A neat Apple Pay trick is the seamless integration with e-commerce, which when done on your phone makes it m-commerce. By adding the Apple Pay icon to your website or app, you can make purchases as seamless as Amazon’s one-click service. Ease and simplicity are both critical to the growth and success of e-commerce and this unified payment approach positions Apple well to grow this payment proposition across anything that people do on their phones, particularly social, the next payment battleground.

What Could Possibly Go Wrong?

Well, apart from a fight with MCX and Google…

As much as somewhat noisy industries like marketing love Apple products, Apple’s global market share is not actually that high. Currently, it is just less than 15 percent, according to an IDC global smartphone report. And global iOS smartphone share is predicted to drop even further as cheaper operating systems find favor in emerging markets.

When you look at some key markets like China, not only is Apple’s iOS share pretty dismal, Apple is very much a spectator to the mobile payment main event, with Tencent and Alipay slugging it out for market leadership. It’s not unreasonable to expect other big emerging markets to produce their own big local champions. To be sure, Apple has an attractive demographic – more affluent users, who spend more money both online and offline – which may make it attractive or even vital for brands such as Amex to participate. But arguably, Apple Pay is only ever going to be a significant niche in the mobile payment business. And that business is a very crowded space where some significant and brutal consolidation is going to need to happen.

With customers (and merchants) constantly being offered payment choices, wallets, payment networks, and banks are going to have to work hard to deliver more attractive payment propositions and stay in business. And with downward pressure on interchange rates, they are going to need to be more innovative about how they make their money.

New marketing models offered by companies like Welcome Real-Time potentially ride to the rescue here with closed loop marketing propositions that enable intelligently targeted real-time offers to be distributed through the payment network to customers. With precise, non-dilutionary, and genuinely useful data-driven targeting, the payment carrier is able to offer greater value to consumers and has merchants willing to fund the offers.

With consumer choice of payment options and thinner margins to fund incentives, the quality and relevance of the valued added offers is a potential differentiator. Apple’s noble move to not track and capture the data that is the enabler for all of this may actually put them at a real disadvantage here.

In Asia we have the luxury of watching how this plays out in the United States, but we should not sit on our hands – this space is moving quickly. We need to understand the partnership, technological, and marketing implications of all of this and be working with, testing, and evaluating wallet operators trying to pick winners and build skills and capabilities in this area.

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