Apple’s iPhone 6 has grabbed a lot of headlines, but it is the company’s entry into mobile payments that may cause the biggest market disruption.
One of the less remarked-upon innovations in Apple’s iPhone 6 is the company’s entry into mobile payments. In contrast with the phone’s larger screen size and exquisite design, this feature may be easily overlooked.
Here, as elsewhere, Apple has chosen the strategy of ‘follower-improver’. But if anyone can spark adoption of mobile wallets, Apple can. And, if it does, then other retailers have every reason to be concerned as well as excited.
So far neither PayPal, Google, Square nor the mobile operators have made much headway into the heartlands of cards and cash.
For customers, traditional payment methods seem good enough and leaving one’s wallet at home is not yet practical. For retailers, near-field communications (NFC) terminals are still a burdensome expense – although one that is more readily swallowed in Europe than in the US.
Apple’s biometric ID and beautiful user interface have taken the art of payment a step forward. The real innovation, though, is not in the technology, but in the negotiations.
Apple Pay has secured a rich slice of the card issuers’ interchange fee, in exchange for added security and association with cool. Apple has chosen to deny itself access to the transaction data, preferring a co-operative relationship with the banks.
By contrast, Google Wallet insisted on seeing transaction data and in return earns thin fees and little support. Google is viewed by the banks as a competitor, whereas Apple is alluring. But banks should be cautious. Apple is the master of disintermediation by stealth, as the record labels know. If it establishes itself with customers and merchants, its position will be irresistibly powerful.
Google, Apple and others seek the Holy Grail of linking rich customer behavioural data (search journeys, ad views, locations, social chat, photo albums, media play lists and so on) with transactions. Whoever closes this loop will have marketeers on their knees. Apple might be pursuing the more cunning route.
For retailers, mobile payment offers a customer experience that is smooth and swish. That is good, but hardly enough. More tangible benefits will only accrue if the opportunity is taken to integrate online and in-store data; to embed loyalty benefits and targeted promotions in the transaction; or to offer the type of customer recognition at point of sale that has made the Starbucks app so popular.
But retailers should also be concerned how this may play out. If Apple, Google or others get their hands on the final transaction piece of the customer jigsaw, their power in the chain could become unassailable. Customers may see them as a trusted partner in their hands, advising and managing their lifestyles. In this case, the retailer will be commoditised to a sourcing and logistics role, while the banks are reduced to low margin regulated payment utilities.
That is why this could be Apple’s biggest and boldest move yet.
- Michael Jary Partner, OC&C Strategy Consultants