Payments Ecosystem

Global expansion plans underway with Samsung Pay. US & South Korea were launched in Sept 2015.

- Australia, Brazil, and Singapore coming soon!

- Followed by China, Spain and UK

Three other interesting developments:

- Gear S2 smartwatches to support Samsung Pay

- The watches to be compatible with Apple devices and iOS!

- Tizen is being operating system 

Samsung Pay is expanding usage of mobile wallet to lower priced Samsung phones and will allow users to shop online. No new statistics were provided on customer adoption, the mention of using MST looppay technology. 

Samsung Pay had an average of eight transactions per U.S. user within the first four weeks of its launch in October! 

Apple Pay's lackluster growth in US during 2015 has been noticed post the big marketing campaigns last year. Loyalty and increase in NFC terminals might increase usage in US during 2016.

- Australia & Canada market Apple Pay is limited to Amex owned issued cards. 

- Hong Kong & Singapore markets will be in partnership with Amex owned issued cards

- Banks in Australia, HK, Singapore are unlikely to partner with Apple Pay due to interchange sharing and also competing products. 

- China partnership with CUP will help enable NFC usage using QuickPass. TenPay & AliPay users can already use QR based solutions at retailers to pay. Will be interesting to see. 

- Japan and South Korea are large iPhone markets, will be interesting to see how Apple Pay plans to tackle those market and fend off Samsung Pay, LG Pay, Kakao Pay as some of the competitors. 

Banks can fend off the disintermediation by Apple Pay like mobile contactless solutions as mentioned in my publication - https://www.linkedin.com/pulse/banks-loose-contactless-payments-landscape-likes-apple-vineet-anand?trk=prof-post

Walmart Pay, a QR based payment for in store payments using debit, credit or gift card launched today. The Walmart app has 22 million active users per month and integrating the system with some secure features like 4 digit pin or touchid have been included. 

This move by Walmart ahead of CurrentC and developed independent of CurrentC is likely a sign of merchants frustrated with delays in CurrentC which is currently in pilot for 2016 rollout. 

Walmart does not use NFC and is integrated with customer app account with a one-time set-up processes which will take a few steps. 

In another communication Walmart mentioned opening itself to accepting the likes of Apple Pay, and Android pay including CurrentC and the recent announcement of Chase Pay. A lot of 'Pay' choices for the customer!

*** Simultaneously published on Linked-in ***

Big week for Apple Pay with announcements of launch in Canada and Australia with a big caveat - only Amex issued cards will be accepted. 

Is this is a smart play by Apple Pay to launch with only American Express in Australia and Canada, hoping it will push other issuers to participate. Lets breakdown on who can use Apple Pay in Australia?  

• Only iPhone 6 and 6s owners with Amex issued cards
• Merchants that accept American Express
• American Express cards issued by American Express and not network cards like NAB and Amex
• Australia has 42 million credit cards in circulation with Amex issued cards estimated at ~5million, net of network cards

From a user perspective, s(he) needs to be aware that Apple Pay works only with an iPhone 6 and above device, the fact it is an Amex issued card (not network), and the merchant accepts Amex. A tall order! Some might argue it is a one-time set-up on Apple Wallet, then it is a matter of finding a merchant that accepts Amex, which is no different today. Yet not all iPhone 6 users are Amex issued card holders. 

In contrast, Commonwealth Bank also announced today that it had expanded the capabilities of its digital mobile wallet offering, Tap & Pay, to support MasterCard and AMEX credit card payments. This means customers can now make purchases using the app on all Android handsets with NFC capabilities, as well as the CommBank PayTag solution for iPhone users, not just limited to iPhone 6 and above.

CommBank has more than 300,000 cards have been set up on the CommBank app and one million transactions processed since Tap & Pay was launched. A smart strategy by CommBank giving its customer choice across irrespective of the mobile device manufacturer. 

There are few strategic questions at play today: 

• Australia market has interchange caps similar to UK and other markets making it harder for issuers to give a slice of the interchange to Apple
• Apple Pay 15cent demand on a $100 transaction is significant as average in Australia interchange is 83cents unlike US market
• For Apple a 15cent ask is a drop in the ocean for the largest market cap company in the world. Its revenues from hardware sales are strong with average selling price per phone of $670 and a healthy operating margin of 39.9%. It begs to question, why demand a slice in the interchange which is of marginal value to overall Apple revenue.
• Android Pay in the US is not taking a cut on interchange from any of the issuers unlike Apple Pay.
• Are issuers concerned about moving the customer relationship closer to Apple, where Apple Wallet will likely have a dominant card, share of wallet, for contactless and in-App purchases?
• Barclaycard in UK is not enabled for Apple Pay and is pushing its own solutions for contactless and wearables thereby building a relationship with its customers rather than be disinter-mediated by Apple Pay. 

Banks at risk of losing control of customer relationship:

Issuers that have spent acquisition dollars, reward and marketing programs, developed a strong brand value that resonates with their customers, retention strategies, and customer service that drives the intimate desire to remain close to the customer whilst embracing new contactless payment solutions. Apple Pay does disrupt that customer intimacy as an issuer / bank to become another choice in Apple Wallet. 

Most banks/issuers have a relationship with the customer that extends beyond credit and debit cards.

Banks need to take control and charge in developing solutions like CommBank Tap & Pay; Barclaycard contactless, Pingit, and wearables; and Chase with its Chase Pay in US which embrace new contactless payment options across the global spectrum of NFC enabled devices with an operating platform of Apple, Android, and MS Windows. A few will point that Apple will not open its SE for banks to use so what to do? The way around is allow for QR based, NFC stickers, or explore HCE.

The road ahead for banks as issuers:

There exists a great opportunity for banks/issuers to use dollars saved from shutting low traffic high street branches to extending individual bank branded application capabilities in contactless, P2P payments, referral to alternative lenders for SMB loans, faster payments, PFM, RDC, identify management and offer a digital array of services that attracts millennials, deepens the existing relationships to drive greater brand affinity with its customer base.

I forecast by 2020, the playing field will get more defined having moved away from the novelty of secure Apple Pay, Android Pay, Samsung Pay and ‘other Pay’ players.

The customer experience and customer choice of either using mobile manufacturer provided solution or a trusted bank partner based solution will outline the winners. Banks today have a great advantage to build upon the existing relationships with their customers offering an array of products in a bank-banded application, however that success will be dependent on their ability to bring speed, innovation, customer experience, and utility which will eventually define the landscape.

References:

 Apple Pay launches in Australia - Sydney Morning Herald

Apple Quarter 4 Results 2015

This post is a reflection of my personal opinion and does not reflect views, strategies, and roadmaps of my employer or clients consulted. 

SMH shares its perspective on Australia Bank's pushback for Apple Pay with interchange sharing being part of the discussion, whilst the larger underlying issue being handing over the customer relationship from bank to Apple for its customers. A few things Apple needs to keep in mind:

• Australia was the 1st market to place caps on interchange across the globe way back in 2003 or so.
• There is likely another central bank ruling to lower the interchange even further.
• The interchange fee in Australia is half of US market interchange fee today and will get lower. 
• Australia's top 4 banks are among the Top 20 banks globally and are highly innovative.
• Post the Australian winter in 2016, the NPP or New Payments Platform will be ready in phases for use, which allows for faster/instant payments. Banks in Oz are investing heavily to drive the shift. 
• Apple has learnt from the UK market that banks will not give any more than a few pence for a transaction, unlike the US issuers that got carried away. 
• Android Pay and likely Samsung Pay will not be getting a cut from the NFC transactions via the mobile, which is a larger base of NFC transactions globally. Apple will have a harder time to convince other markets to accept Apple Pay by asking for a cut of the interchange fee. Markets like Japan, Korea and few others where Apple has between 30% to 50% of market share, possibility to wrangle some interchange fee. 
• Apple Pay history of usage in US is of question since only 19% of its entire Apple Pay device base is using Apple Pay; personally I tend to forget to use Apple Pay at times!

Apple needs to reconsider what is more important - cut of the interchange fee which barely adds much value to its current profitability or allow Apple iPhone/iPad users to pay as a feature just like there is a iPhoto app to take pictures. Also, banks especially in Australia that are more innovative than their western counterparts, in most cases, with far more developed domestic switches, with lower interchange fees ... will be willing to let Apple take over the customer relationship for payment of a card transaction.