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What Apple's announcement means for the payments industry

Paul Henaghan, Managing Director, APAC at ACI Worldwide | Sept. 10, 2014
Apple Pay is expected to affect banks and retailers. Find out how.

With the news of the iPhone 6 and Apple Watch debuting with mobile wallet capabilities in the marketplace, Apple's announcement has given the (mobile) payments industry a boost, no doubt about it. But in what direction, and what are the implications?

At long last we have near field communication (NFC) built into the hardware -- an addition long speculated, and often disappointed. For years there have been two camps regarding NFC, one predicting its demise and the other its rise as a key technology in mobile payments. Thanks to the recent wave of industry support for host card emulation (HCE), and now with Apple adding NFC, this settles the debate rather convincingly. That's not to say that NFC will dominate everything, but it certainly goes a long way in addressing the chicken and egg problem and means that industry players will have a lot more reason to support NFC payments. Together with TouchID and the Secure Element, not to mention the integration with Apple Watch, the complimenting technologies look quite promising and quite exciting.

But, although the blogs have been abuzz with speculation around these technologies, this is not the heart of what Apple has delivered to the industry today. What is far more significant is the effort they have expended in partnering with key industry players to pave a pathway toward success. Their approach of making the value of the wallet greater to both participants and consumers, paves the way to ensure wide acceptance, greater relevance and thus broad adoption of their wallet. This is where other players have failed, despite the inclusion of compelling technology.

Think for a moment of the spectacular success of two completely different schemes: M-Pesa and Starbucks. These are undeniably two of the most significant mobile payment success stories to date, yet neither of them relied on bleeding edge technology. Instead, both were underpinned by a compelling economic model (even if this wasn't initially clear in the case of M-Pesa), and were rolled out using technology that was mainstream in their respective target markets. Both had a low adoption barrier, and both offered tangible yet uncomplicated consumer value. And perhaps more significantly, neither relied on mass participation from retailers, banks, card associations or other processors. Which is exactly where other mobile payment players have struggled, as they've tried to roll out 'one size fits all' mobile wallets / payment schemes. Apple seems to have understood this. But it also hasn't deterred them. They came out right up front with a really great group of friends.

Their list of key banks, card associations and especially retailers is impressive. Not everyone can pull off such a level of agreements -- although to be fair Apple is perhaps one of the few companies who can. But was it simply up to good negotiating skills? Did Tim Cook strike a deal with everyone as he did with U2? No. Apple's trump card today was that they've decided to let the banks and the merchants own the big data. This is truly significant, since in one statement they took a massive stab at some of their biggest competition, and at the same time opened the door to everyone else. They didn't even talk about loyalty, rewards, coupons and the like. They didn't need to. It will now come to them from willing participants who need not feel threatened.


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