So Apple Pay is a huge success. With over 1 million activations in only a few weeks, Apple Pay is the new electronic wallet. But why have banks, Visa and MasterCard been so willing to play along? They are handing over tremendous control to Apple, both with merchants and customers.
We understand that Apple is currently playing within the framework of the existing payments echo system. Its current model doesn’t displace Visa, MasterCard, the issuing banks or merchant processors. As a result, all have been more than happy to jump on the bandwagon, and take advantage of Apple’s huge distribution capabilities.
But what happens if at some point in the future, Apple decides to change course, bait and switch. At that point it will have overcome its largest hurdle to the successful deployment of a mobile wallet to date, which is widespread customer AND merchant adoption. Right now, because of Visa, MasterCard, Chase and Bank of America’s cooperation, Apple is signing up millions of users and millions of merchants – the more users, the more merchants, the more merchants, the more users.
Fast forward 10 years. Apple has 100’s of millions of users and over 5 million merchants. Why can’t it now issue its own credit card on its own network? What does it need Chase or Visa for? Regulators may get in the way. But if regulators are currently clamoring for more competition with Visa and MasterCard, it will be hard pressed to justify keeping Apple out. Competition is good right?
But if that were to happen, how would retailers react? We know that retailers are already looking at creating an alternative to Visa and MasterCard of their own called CurrentC. CurrentC is a payment network, which would allow consumers to pay for goods directly from their bank accounts, and retailers wouldn’t be charged any interchange. In many ways it would be similar to Canada’s Interac debit network, which only charges retailers 2 cents to 6 cents regardless of their size. CurrentC is what has the likes of CVS and Walgreens reluctant to adopt Apple Pay. They don’t want it to succeed. Apple Pay, whether working in the current or a new payment echo system will maintain or increase payment expenses for retailers.
Guess who else is involved in CurrentC, behemoths WalMart and BestBuy. None of the above retailers want to introduce a new entrant onto the scene unless they are comfortable it will reduce their payment expenses. The problem is retailers aren’t comfortable. However, with over a hundred million people asking for the same thing, it may be hard to refuse. In the end, the market will go where consumers go, and consumers will go to the best product – and that’s why Apple Pay has won the game for now. It will be fascinating to see how Google, Samsung, Verizon, and Visa react in the near and long term.