Will Apple trigger the mobile payment era?

16 Sep 2014

Apple launched Apple Pay last week with iPhone 6 and Apple Watch. Apple Pay has the potential to be a more important game-changer than the Apple Watch, and definitely much more important than a larger screen. We have discussed mobile payments over 10 years now, but do we now see the turning point where they will finally start to take off?

It is not a big surprise that Apple is active now. I wrote in my Vision 2014: Finance services finally go mobile and Finance goes online and mobile articles that 2014 can be the breakthrough year for mobile payments, and recommended telcos to be active and attract finance sector partners. As we have seen several times, telcos have had a pole position compared to startup new mobile services, but companies like Apple and Google are willing to take over leading positions and build dominating ecosystems.

Payments don’t require too much technology, e.g. NFC, although it is an advantage. The winner builds the winning ecosystem. And an ecosystem needs cooperation with credit card companies, with banks, and also support from Point-of-Sales (POS) systems. The timing of the announcement is also interesting now that the US, and also many European countries, are upgrading existing POS payment terminals anyway, when chip cards (in the US) and contactless cards are coming. So, it is a good time to bring in other contactless solutions.

It would also be stupid at this point to try to compete with credit card companies and banks, better to work with them. And it is good to remember that credit card companies and banks now carry risks of payments, e.g. if a payer has no money to pay or in fraud cases. But who knows what will happen in the future, if people really start to pay with their mobiles in stores, and at the same time use mobile for online purchases.

Cash still dominates small transactions in many countries. Apple Pay and contactless cards mainly focused (at least first) on smaller transactions. It means that although credit card companies must pay a slice from their share to Apple, this can anyway increase their market share and revenue.

We still have several questions over how Apple Pay will really work. But now it looks like it will be easy for users to start to use it, there will be quite a lot of POS terminals that will support it, and Apple has support from financial institutions. This is again an excellent opportunity for Apple to open a new market.

All this doesn’t guarantee that Apple will dominate the market, for example Google may be able to follow with its partners and huge Android shipment volumes. Can telcos still get a role in this market? Yes, especially outside the US, but there’s no time to wait anymore. They must get local payments with local and global financial services partners to work in the next 12 months. I doubt this will really happen. Otherwise, history will repeat itself: Apple will open a new market, Google follows with big volumes and Microsoft, of course, will burn a lot of money in this market too.

Incidentally, Apple Watch is an interesting gadget, but I’m very much in the wait and see mode; I see Android world phone accessory (e.g. Samsung Gear) - type watches as useless, and we don’t exactly know how well and independently the Apple Watch actually works.

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