8 September 2014
Day before the big event tomorrow, therefore a good point in time to make some predictions and then see where I fall down. How did I get all this G2? Remember, payments is the worlds second oldest profession.. there are very few new ideas. This blog broke the news of ISIS/Mercury 1 year before launch, predicted Apple’s role in payments, … talked about why MCX was forming. My G2 was not someone telling me what was going on.. it was looking at the pieces on the floor and predicting how it will work by making logical deductions surrounding constraints (and learnings) of each participant. Networks are very, very big and sticky businesses. Participants learn lessons and apply them to the next project.
Authentication, secure storage (in the cloud/phone) tokenization and a mechanism for allowing exchanging information (iOS Extensions) allow for so many new processes. Apple is the KEY (security pun)… perhaps that should be the blog title
- Apple will have payment capability, but won’t spend too much time on it. Afterall, this feature has been in market with other handsets for over 3 years. Its not important to them financially, nor is it in the top 5 reasons a consumer would buy their phone. NFC is not their ideal use.. Apple had a fantastic BLE experience defined (and patented).. this is what they may demonstrate. With Square??
- Apple will demonstrate other uses of the phone/security. For example opening a hotel room door with Starwood or Intercon
- The iWatch will be capable of doing either of these through secure integration with the phone
- Apple will have a “buy button” for eCommerce/mCommerce.. Paypal will be a key merchant acquiring partner here. Consumers that want to buy online and have iOS 8 will see a buy button and everything else will happen seamlessly (address, card information). Merchants will be able to keep their current processor.
- Significant focus on consumer security and anonymity. Apple will be the “consumer champion” here, protecting your confidentiality online and in store.
- Apple will announce new program to help merchants with loyalty. The job postings just coming out this week.
- Apple will have a set of 5-10 merchants talking about why they are excited about iPhone 6.
- Apple payments will be the most secure POS payment scheme on the market, supported by the new EMVCo tokenization specification.
- I sure would like to see more merchant friendly solutions announced.. a long shot would be MCX within Apple’s wallet.
Winners in all of this
- Apple.. perhaps the most important handset launch since the first iPhone
- Consumers. fantastic new platform for security, better screen, iWatch, payment, door opening, …
- Visa, Mastercard, Amex and Issuers. They needed someone to kick start mobile payments
- NXP, Broadcom, Qualcom/Gimbal. A new platform for hardware sales
- Application developers, a brand new way to access secure consumer information
- eCommerce/mCommerce sites.. a brand new way to pay for the most valuable consumer segment
- Retail system providers.. what do you tell a consumer in Aisle 12 looking buy X.. Retailers need that answer
Likely Winners
- Verifone/Ingenico. Contactless Terminal Adoption
- ?Carriers?. Tremendous iPhone demand is a double edged sword, particularly for a phone where MNOs don’t control a SE
- Affluent merchants. Ability to construct fantastic consumer experiences with Beacons (ie Nordstroms/Macys)
- Advertisers.. how will advertisers work with Apple in their new consumer champion role?
Losers
- Gemalto and the GSMA.. Their version for NFC is gone
- Payment specialists/startups. Payments are going to the OS.. there is a “different need” for specialists
- Samsung/HTC, … The only way for them to compete is to move closer to Google..
- Any company that uses a Mac Address or a card PAN to track a consumer…
- ?? I don’t like to focus on losers..
Nothing for Paypal?? Great issuer list though and they did very well with the acceptance side of things i think
Cool post tom. Square should be announcing something soon. Jack Dorsey was there today and tweeted that Square will be supporting ApplePay. https://twitter.com/jack/status/509413534862544896
A quick “how to” pdf is here… https://developer.apple.com/apple-pay/Getting-Started-with-Apple-Pay.pdf
Among other things it shows a transaction sequence which begins with the merchant side identifying itself to the consumer (phone). Why wouldn’t they just process the transaction via the mobile network in a model where POS is just notified about the results instead of driving the transaction. I realize that there are issues with this consumer centric approach but only this approach would open the door for an introduction of a new business model, potentially without the IX fees. What we need is to have the payer (phone) and the payee (some POS) directly connected to the network/cloud/payment server (payer via MNO and merchant via ACQ) and the consumer id/authentication service that apple can do very well. The sources of funding and the destination accounts could be on the “other side of the cloud” and there is no reason that they have to be accessed via IX or EFT networks. Without some movement towards disintermediation of IXs (which outlived their usefulness) Apple Play does not look that much different than other failed attempts to store card related info on the phone and feeding it to the POS in the traditional 4 party model… IMHO. It is true that the tokenization (provided by VI and MC TSP) will reduce complexity of credential provisioning and will make it possible for consumers to use many different cards, but this is still a card based system with all its deficiencies… most notably questionable business model for all parties involved especially in the case of LVPs and micropayments. I say, lost opportunity. Let’s see how this topic evolves now… perhaps there will be some impact of MCX and PayPal… and at some point QR codes will have to come to play.
Tom – Thanks for doing this blog and sharing your insights.
Question: I find it hard to see how the banks and networks benefit much from Apple Pay. The only case I can see is that it is a relief that Apple didn’t try and disintermediate them from the process by providing an ACH option. The issuers have to give up a piece of their interchange fees and wouldn’t most folks that use Apple Pay be using a credit/debit card anyway so they’re not picking up much additional volume from this partnership? Seems like they had to “pay to play” with Apple or else risking losing market share to competitors that did sign on. Doesn’t seem like Apple is expanding the revenue pie with this but rather becoming another mouth to feed with the same revenue pie (interchange fees). Also, would be curious to get your opinion on why PayPal, Discover, and private label cards were not included in the initial announcement? Do you think they will come on board later?
In a perfect world you are right.. IF banks would support debit and credit equally than there would be no issue. However 95%+ of cards in iTunes (US) are credit cards.. adding a new card.. it will not be as easy as the picture made it seem. So we are left with APplePay using predominantly credit cards.. will consumers add debit? a risk that they won’t