Apple Mobile Payments: A Tale of Two Cities – Part 1


“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us… “ - Charles Dickens

Depending on your perspective, the recent announcement of Apple Pay (or at least the period leading up to it) may have been one of extreme dread or great anticipation. Apple fans wanted “the next big thing” (sorry, Samsung) and most payment people were gnashing their teeth.  As a non-Millennial, payment guy with college-aged children that consider me “old”, I found the news interesting but was left with some questions.

Apple certainly has the swagger and cachet to pull off a disruption like no other company in the payments space:

  • Scoring big with the three main credit card networks (what was Discover thinking?) and the top issuers that cover 83 percent of cards 
  • Incorporating tokenization with fingerprint access to help on the fraud front
  • Timing their launch during a period where merchants are already updating their terminals for EMV

This was all cloaked in the new iPhone 6/6+ and (future) Apple Watch, which all look very nice.  I’m not qualified to comment on screen size, thickness or camera MP.  However, I am not the only one wondering: Is this a solution in search of a problem?

According to Bank of America’s recent “Trends in Consumer Mobility Report”, approximately 60 percent of respondents said they are not comfortable using their smartphone as a wallet.  When asked which payment method was most appealing, 63 percent said traditional payment (i.e. check, credit card or cash).  It seems that mobile wallets may not be in “demand” after all – at least as far as the 1,000 people surveyed are concerned.

In fact, an American Express executive was recently quoted as saying that “swiping isn’t particularly broken”.  Various pundits put the likely near-term iPhone 6 market at a sizable 25-50 million phones with 220,000 merchants to start.  However, compare that market size against the over 8 million U.S. merchants plus the fact that the MCX retailers (e.g. Walmart and Best Buy) who supported the Durbin Amendment have rolled out their own mobile wallets.  Though unscientific, I’ll use some family examples to illustrate a few of the hurdles that could lie ahead for Apple Pay.

My two college sons use “dumb” phones (non-smartphones) and second generation iPods.  The media portrays many Millennials as interested in the latest and greatest smartphones.  However, my two sons are not interested in spending big bucks on the next smartphone and data plan. Instead, they are out buying the next gaming console with their Debit Cards (and hopefully doing some studying, too).

On the technology front, my wife has had issues with her new iPhone (e.g. home button sticks and the screen freezes).  Between that and the phone running out of battery quickly, she wouldn’t be comfortable swapping the wallet in her purse for a phone, especially while driver’s licenses, cash, loyalty and other cards still exist.  She will continue to take both everywhere and makes the majority of the purchases in our house.

What is important to understand is that banks will continue to be involved – they are a highly regulated industry. Just like the music and telecommunications industries, Apple will work with bank providers to change the “customer experience”.  However, other than being “cool” and stealing the hearts of Millennials, where’s the incentive for the average American consumer to switch?

I’m not trying to sell buggy whips as automobiles come on the scene.  The same Bank of America survey said 33 percent of respondents were partial to alternative payment methods such as all-in-one cards, digital currencies and mobile/social.  One thing is for certain: Apple has indeed raised some “Great Expectations”.

In “Apple Payments: A Tale of Two Cities – Part 2”, I’ll look at how Millennials may play a key role in how Apple Pay evolves the payments space.