Apple Pay Ignites The Mobile Payment Battle

This post in Danish for Mandag Morgen
With the launch of Apple Pay the battle over the lead in the mobile payment market has entered a decisive phase. Apple's solution opens up to new opportunities in the US market and may ultimately help their competitors succeed including Google Wallet, Paypal, Square and a number of smaller but serious players.

Apple Pay launched on October 20, 2014, triggering an acceleration of mobile payment solutions with an increase in the competition. You can only use Apple Pay in the US for now, which allows you to pay with your iPhone and your fingerprint, if you own a US credit card and one of Apple's latest iPhones, the new iPads and Apple's upcoming Watch. First Apple revolutionized the music market with the iPod, then they pulled the rug out of the mobile market with the iPhone. With the iPads they created a new computer segment, and now it seems that the turn has come to the mobile payment ecosystem.

With a heavily fragmentet financial sector in the US, a variety of technology companies have been trying for years to reinvent this industry with the mobile as the preferred platform. With the launch of Apple Pay the competition has intensified (link: http://jyskebank.tv/014035180681401/tech-and-the-city-hvad-er-fremtiden-for-mobilbetaling).

Paypal was spun off as an independent company from eBay on September 30, 2014 based on the grounds that they want to focus on their core business rather than be a part of eBay, which no longer pose a significant part of Paypal's revenue. Square, founded by Jack Dorsey, who also was a co-founder of Twitter, are transforming the payment market with Square Reader, Stand, Cash, Market and a variety of other financial services. Google launched its Wallet in 2011, which is a direct competitor to Apple Pay, which also uses NFC (Near Field Communication) as the technology on their mobile phones. NFC makes it possible to exchange data between digital devices within a short distance.

To use Apple Pay it requires that you own one of Apple's latest devices. You can connect your iTunes-profile or add some of your other credit cards under Apple Passbook. All you need to do when you want to pay in a store is to hold your iPhone up in front of an NFC reader, which automatically activates Apple Pay on your screen, then you put your thumb on the phone's "home button" that then authenticates your fingerprint - processing the payment (link: https://www.apple.com/iphone-6/apple-pay /). You can also use Apple Pay on a number of apps including Airbnb, Groupon and Fancy. You are only able to see the recent transactions in passbook, because Apple has decided not to track your purchase information, hereunder your transactions, what and where you pay.

Apple leads the US smartphone market, with a market share of over 41 percent making it much easier for them to ensure a market adoption with Apple Pay. What they also managed to do opposed to their competitors was to make agreements with American Express, Visa, Mastercard, over 500 banks and many major brands, including Bank of America, McDonald's, Nike and Footlocker. So whether you live inside or outside the US, your next wallet will probably be made of aluminium rather than leather. The battle for mobile payment is intense everywhere in the world (link: https://www.mm.dk/blog/gladiatorkamp-om-mobil-betalingsservice) and now the mobile payment field including SMS, QR codes, mobile credit card readers and all the other solutions can welcome the new heavyweight champion - Apple Pay, who in addition owns the world's largest database of credit card information, namely iTunes.

Paving the way for  their competitors 

There are a lot of benefits with Apple Pay especially in the US where you still hand over your credit card and sign when you buy a product in a store. It increases the risk of abuse and identity theft as all data can be read from the card without the customer noticing it. At the same time the signature can be easily be faked. Parts of Asia and Europe has been ahead of the US mobile payment market for a while, as they use chips and enter a PIN code when they use their credit cards. This decreases the risk of credit card fraud significantly. 14 percent of US consumers have more than 10 credit cards, which they can now gather on the phone. For European consumers the biggest advantage will be that you do not have to rummage around in your bag to find your credit card, but just take your phone out of your pocket and make your purchase. More smartphone users leave their homes without their wallet than without their smartphone, indicating that the consumers ready for a change.

Google Wallet has been around since 2011. But unlike Apple, Google has a habit of launching changes iterative. Apple on the other hand ensures that they control the value chain by making agreements with their stakeholders, allowing customers to have value from day 1. It is not only Apple that has an interest in ensuring that Apple Pay has success. Banks advertise to their customers, annoucning that they now have a new payment solution that also saves them money by minimizing fraud. Ultimately the prevalence of Apple Pay is paving the way for all the other players in the market, which has happened so many times before when Apple plants a seed for change. Given that Apple Pay is being implemented throughout the United States, from banks to big brands, with NFC readers in stores, Google, Samsung, LG and other software and hardware vendors have less work to expand their services.

A new consortium of merchants, led by Walmart and about 50 other retailers hereunder Best Buy, Rite Aid and CVS are blocking Apple Pay. They have launched their own mobile payments system called CurrentC which collects information about the consumers buying habits. Apple's CEO Tim Cook said that mobile payments has failed so far because they were built to serve the business models of their creators, rather than to provide a useful experience for customers. A trend the Walmart consortium seems to carry on.

The main disadvantage of Apple Pay is quite banal: don’t run out of power! And from a commercial perspective it is a disadvantage that Apple doesn’t store customer transactions, since retailers needs an additional solution to handle loyalty programs, promotions and other offers targeting their customers when they are in the store. From a security perspective, it may delight consumers that Apple does not act as Amazon, Google or Facebook probably would have done by gathering as much information as possible so they know even more about their users shopping patterns. The reason is that Apple first and foremost makes a living by selling hardware, unlike many of the other Internet companies that make money on their software and data collection. Banks are also helping to finance Apple Pay, paying a fee when they use Apple’s service.

With the proliferation of NFC readers in shops, Android users will also be able to use their smartphones to pay on the go. This small step with Apple Pay may lead to a leap within commerce, offline as online, partly because the infrastructure will be in place, but also because consumers become accustomed to the phone becoming a key part of the buying experience. If Apple Pay is combined with many new commerce solutions (link: https://www.mm.dk/blog/ibeacon-vinder-slaget-om-fremtidens-markedsfoering), including iBeacon, RFID and NFC, retailers can offer even better omni-channel solutions in the future.

While there has been much hype surrounding Apple's new iPhone 6 and Watch, Apple Pay might prove to be the most interesting launch in the long run. Apple conquers a new industry with a great chance of success, extending their oligarchy by providing the hardware platform and infrastructure, that their customers use when buying products offline as online.