LAST month Apple unveiled the iPhone 6, together with the Apple Watch. As usual, the announcement was met with great fanfare and one can expect queues in front of iStores around the world as the products are launched.
One feature of the new iPhone that may have gone unnoticed by most users is the inclusion of the Apple Pay platform. Personally, I think this may turn out to be one of the most disruptive changes brought to the market by Apple in a long time.
Apple Pay is software on your Apple iPhone 6 or Watch that allows you to make a payment using your phone. No debit or credit card swipes are needed. All you need to do is to hold your phone close to the pay terminal and your payment is made utilising built-in near field communication (NFC) technology, which is embedded in the Apple device.
The platform can also be used for online purchases where, again, no credit card details need to be typed in before making a payment. It is simple to use and safe. Payments are authorised using fingerprint authentication on the phone and no credit card numbers are stored.
As always, Apple aims to improve the customer experience when interacting with technology. As stated in an e-mail by chief executive Tim Cook, Apple brings “together the best hardware, software, and services to create a seamless and intuitive user experience”. So what does this mean for the payment industry?
Mobile and NFC payments are nothing new. Google launched Google wallet, which runs on Android phones, in 2011 already. Payment companies such as Visa and MasterCard have invested millions of dollars over the past few years to develop mobile and NFC capabilities. What has remained largely elusive, however, is user and merchant adoption.
Apart from a few online stores, boutique brick-and-mortar stores and a few cab companies, finding a use for mobile payment capabilities on a phone continued to be questionable. That was until Apple entered the playing field.
As with the introduction of the iPod so many years ago, Apple did not just launch the technology, but also the ecosystem needed to make it more viable. With the iPod it was iTunes. With Apple Pay it is a vast network of merchants who signed up to accept and integrate with payments made by iPhone users. Companies such as Disney World, McDonald’s, Nike and Subway are just a few of the retailers.
The world’s two biggest payment networks (MasterCard and Visa), including some of the biggest banks in the US (Bank of America, Capital One, Chase, Citi, and Wells Fargo), will also participate.
Apple rarely introduces technology that has never been seen before. But when the company launches a product it is normally more customer-friendly, much more successful, and the world takes notice. Currently Apple Pay will only be available in the US but, rest assured, that will change in the next year or two and merchants and banks in other countries should take note. Stores would be expected by their clients to have Apple Pay acceptance capability.
This will affect banks and other point of sale device providers directly. Rolling out this technology to your merchant client base can be expensive, but will be necessary to compete in the market. There will also be pressure on banks to participate, as was the case in the US, to allow their credit cards to be accepted on the application. In smaller countries, where Apple might not be the dominant phone being used, this will leave banking executives with some difficult cost decisions to make.
Although Apple Pay still requires the user to scan in their credit card to be added to the payment application, one can expect this to change in the future. Why would users want a plastic card if they will be using their phones to pay anyway? This might be an opportunity for banks to “issue” cards directly on to mobile payment applications, rather than producing and delivering a physical debit or credit card to users. This will have a significant cost and service implication.
Gone will be the days of having to wait three days (if you are lucky) to have your card delivered to you. Delivery will be instant to your phone. Realistically, it may still be many years before physical cards will be a relic of the past given the infrastructure requirements to make this a reality. But it begs the question: how are retailers and banks around the world preparing themselves for the inevitable disruption when it comes to payments?
When cellphone and other technology companies are becoming dominant players in the payments industry, then role players should take note about the impact that will have on their own revenue streams and leading positions in the value chain.
With companies such as Apple, Microsoft, Amazon and Google becoming more relevant in facilitating payments, it can be expected that the industry and all role players are open to being disrupted, unless they innovate to stay relevant.
Willie Krause is the senior manager for process innovation at IQ Business.