Payments Ecosystem

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

*** 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.