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Apple Pay - the Gorilla has landed

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Has Apple transformed the payments industry forever ?

Apple really knows how to stir up a market. Last week, with the release of the iPhone 6, complete with the new ‘Apple Pay (AP)’ mobile payment capability, Apple sent the payments industry into a tailspin which left everyone wondering just what the announcement means – especially our nation’s banks. Currently only 2% of the four trillion dollar payments market, which is comprised of over 200 million transactions per day, uses mobile devices to make payments, but no one doubts that is just the tip of the iceberg. The market, however, has been disjointed. Google, square and PayPal have all launched mobile payment solutions using different technologies and infrastructure. NY Time’s Jenna Worthman said, “The imminent mobile wallet remains elusive for mainstream adoption”. And then there was Apple Pay.


A lot of people are saying that Apple Pay is a bad blow for banks, but is it? Apple Pay has just standardised the mobile point of sales, and in app payments playing field. At least for iPhone 6 users. It is secure, using touch ID and a tokenised data system to keep private information hidden. Like all Apple products, it’s a consumer’s dream come true, with its slick, user friendly customer experience, and that could mean more future transactions for banks. Apple has already said it will not store payments data and banks still have all the transaction information to fuel customized product development, so where’s the downside? It is rumoured that banks are offering Apple lower transaction fees for credit card processing, but banks are hoping increased transaction rates from ease of use will make up the difference, and they may well do just that.


There are still a lot of unanswered questions in payments and the bottom line is, only time will tell. One question is; which technology will the industry adopt? Many contributors feel the Apple Pay release was pure genius by Apple, as it touched down right in front of a forced point of sale (POS) technologic up-grade needed to support chip and pin terminals at US merchants, which can also allow mobile transactions. Contrarians would say discussions regarding utilising existing NFC technology and credit cards are already obsolete, and everything is simply going to the cloud. Another question; who, in the end will pay, and who will be paid, transaction fees? Currently, the merchant will pay existing interchange fees, with a portion now paid to Apple. However, as Apple’s place in the ecosystem becomes more entrenched, merchant fees could potentially increase as issuers and networks look to recover their current reduction in fees which is being given to Apple. This is not simple stuff.

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The present situation in the payments industry is a mixed bag for banks, as well as for merchants. Apple Pay undeniably reduces the brand awareness of banks. If consumers start to use ‘Apple Pay’ as a verb, the affiliation to bank cards is basically removed and that could have implications. On the other hand, Apple is not competing with banks, leaving them their traditional role and offering an integrated solution so banks are excused from the pain of having to build and launch their own mobile wallets. For merchants, the good news is increased transaction speeds, reduced fraud and the Apple cool factor. The risk of increased interchange fees and POS terminals technology investment however, is not great news for merchants, and one begins to wonder, just how much weight does the merchant have in this equation? Without merchant adoption of Apple Pay, AP is sunk, and yet we are living in an unprecedented age of consumer expectations and digital demands so who will lead the dance, merchant or consumer, is still up for question.


The fact is banks still have a vital role to play in the payments ecosystem – and now they are very aware that they are going to have to collaborate with the technology industry to meet customer requirements. And speaking of customer needs, although Apple may have been the “Trojan Horse” for banks in the mobile wallet space, the new open API that Apple is using, as well as Apple’s iBeacon indoor proximity system, that can pinpoint its own location in a store and help a phone show notifications of items nearby that are on sale, could both be leveraged by banks. Apple’s infrastructure could also provide banks an extraordinary opportunity to enable person to person, as well as business to business payments, and the improvement of mobile interaction and ease of use could build back up the brand stickiness and differentiators feared lost by banks in the battle. There are also ramifications for small business, being that with the potential to use smart phones as POS terminals, banks could significantly reduce costs for this sector, vastly removing barriers to entry and growing that space.


Clearly the substantial payments question is posing both challenges and unexplored possibilities for traditional banks. It will be a fascinating time in the industry to see how finance goes mobile and serves its new millennium clientele, in partnership with technology giants. The key will be to assure that banks are informed, on a real-time basis, of breaking industry trends. That is how fast technology is changing the game. Strategies and solutions will have to be incubated in an environment that can handle change at breakneck speeds. It will be imperative for banks to have change capabilities that can drive and shift the production of evolving services needed to compete. It will also be necessary for banks to have seamless end-to-end systems and processes that enable them to deliver the next age of financial technology. (Here I am trying to queue up Boldrocket, Open Concept Banking, CAPCO change capabilities and FIS without naming us.) The industry is changing. Tell us what you think…And then some shout out to Barry’s Twitter .

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Capco knows and cares about banks, and has a strategic view of the mobile payments space. We can help navigate the complex eco-system of the payments landscape as a trusted partner with whom to determine strategic direction and build a solid, strong go to market program. We have a deep understanding of change and a proven track record in developing and delivering innovation. Capco has a dedicated, in-house digital production capability in addition to having strategic partnerships with our parent company FIS, a leader in finance technology which supports end-to end solutions, including mobile wallet and mobile banking solutions for our clients. Capco has invested in developing a capability that is uncovering and implementing strategic agreements with new entrants and non-financial service providers to foster collaboration and bring breaking advancements to our clients. Payments is a bumpy road and the right plan, for banks, will be crucial. Partner with someone you trust for support in this space. If you’re not talking to someone at Capco, you should be.

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