More than 500 financial institutions now are in line to support Apple Pay, but could their involvement in the scheme just be a placeholder until individual banks solidify their own mobile payments plans? At least one industry observer believes that is the case.
Apple Pay goes live Monday as part of an iOS 8 software update, and Apple expects more financial institutions beyond the initial partnerships will add support by the end of the year and going into 2015, CEO Tim Cook announced Thursday during the company's special event at its headquarters in Cupertino, California.
While the new additions give more consumers the chance to use Apple Pay, just how long those bank partnerships will remain relevant remains to be seen.
"The key point for bankers is, simply signing a contract to issue or accept Apple Pay is not a mobile payments strategy," Richard Crone, CEO and founder of Crone Consulting LLC, wrote in an email to Mobile Payments Today. "Just as Intuit, Microsoft or AOL were merely bridges to a financial institution's own branded Internet banking experience in 1996, so will it be for their branded mobile banking apps."
Crone speaks from experience as he was the senior vice president and director of online banking at Home Savings of America in the late '90s. At the time, he convinced the bank's board of directors to spend $1.5 million to be included in the initial launch of online banking inside Intuit's Quicken and Microsoft Money. Crone met his first-year projections in the first three months of the launch.
"However, within a year we were able to connect directly with customers through our own "app," our own branded Internet banking site," Crone wrote. "Needless to say, we were able to abandon our financial commitment to Intuit and Microsoft and save millions of dollars."
The banks involved now with Apple Pay might view their partnership much in the same way. Don't forget: The banks are paying Apple for card payments initiated with Apple Pay. Jeffries & Company reports the rate is 15 basis points per credit tap and a half cent per debit tap. Crone believes Apple's interchange cut is one of many costs banks will eventually want to avoid and lead them to work directly with merchants, particularly the Merchant Customer Exchange.
Crone believes banks would prefer to:
- Eliminate the tokenization fees to Visa and MasterCard and American Express by using their own tokens in their own bank wallet.
- Circumvent the processor fees for accounting and paying the fees to Apple and Visa and MasterCard.
- Minimize the cost of providing tier one customer and/or member service since Apple, Visa, MasterCard and the processors have all insulated themselves contractually from this responsibility for Apple Pay.
- Recapture the foregone value of the upside revenue potential from the ads and offers, estimated to be worth about $300 per active mobile wallet user per year. The mobile wallet is a market platform, not just a wallet.
- Reduce the risk of losing the user interface, tender steering and marketing options to motivate banking customers or credit union members to use their preferred tenders and activate offers for which they are compensated for vs. a third-party intermediary.
"Banks are going to prefer using their own branded wallets to avoid all the costs listed above," Crone wrote. "Apple may or may not have studied history, but they are doomed to repeat it."
Meantime, Apple announced more merchants will support Apple Pay in brick-and-mortar locations as well as for in-app purchases, but that portion of its offering is still lacking:
New support for Apple Pay from 500 FIs. That's helpful and good news. Merchants still thin but more signing on.— James Wester (@jameswester) October 16, 2014
Cook continued to emphasize Apple Pay's security features and called the system the "easy, secure and private way to pay for things." It was a sign that he and Apple will continue to reassure consumers their information is safe after the recent iCloud mess that saw a hacker gain access to celebrity accounts and then proceeded to sell their nude photos on reddit for bitcoin. PayPal poked fun at Apple's misfortune in ads after the Apple Pay debut and questioned whether the tech company is equipped to protect sensitive payments credentials when it couldn't protect selfies.
Still, Cook touted Apple Pay as the new way for conducting commerce.
"We believe it's going to be huge and change the way we pay for things," he said.
Consumers also will be able to use Apple Pay on the company's new line of iPads that now include the Touch ID fingerprint scanner, which was the most requested feature consumers wanted Apple to add to its tablet family. The iPad Air 2 and the iPad mini 3 do not have an NFC chip, so Apple Pay will be limited to online commerce on those devices.
Cook did not spend much time on Apple Watch, but did announce a software development kit for the wearable. WatchKit enables developers to create apps for Apple Watch, which is due to debut early next year but does not have a firm release date.
Perhaps the most under-the-radar announcement today from Apple was one slide it showed about a SIM preinstalled in the iPad Air 2 with Wi-Fi and cellular network coverage.
"The Apple SIM gives you the flexibility to choose from a variety of short-term plans from select carriers in the U.S. and U.K. right on your iPad," according the feature's description. "So whenever you need it, you can choose the plan that works best for you with no long-term commitments. And when you travel, you may also be able to choose a data plan from a local carrier for the duration of your trip."
Initial participating mobile network operators include AT&T, Everything Everywhere, T-Mobile and Sprint.
Will Hernandez / Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.