Apple Pay turns '1' -The Myth of Fintech Disruption

Apple did pick up a big compartment within the financial services industry that can be potentially revolutionized by a tech innovation almost a year ago when it launched the Apple Pay. At the event Chief Executive Officer Tim Cook sounded quite collaborative when he described that the magnetic stripe card payment process as broken for its reliance on plastic cards “outdated and vulnerable magnetic interface”, “exposed numbers”, and insecure “security codes”. The partnering with the existing players in the eco system as the underlying got reflected when JP Morgan the largest card issuer in the US put a live stream on large screens in its lobby in NY without spelling   the raison d'être for such a live stream on the day Apple pay was to be announced.

The core value of fintech that triggers a disruption lay in an Uber like experience while dealing with their bank - simple and interactive as customer’s best user experience is now the benchmark for all their business interaction. Apple Pay does offer that even as your phone is asleep or you are in the midst of something else as the image of your default credit card appears when you get close enough to the NFC terminal. Just a tap to pick another card in lieu of the default one. It all ends up when you lightly put your finger on the Touch ID sensor to approve it. What if my iPhone is lost, I just need to suspend payments via Apple’s Find My iPhone website. Thumbprint being the pre-condition for payment authorization a thieves shouldn’t be able to make purchases.

What a contrast to the ‘disruptor’ who aim to do away with the existing ecosystem -MCXs’ promoted ‘CurrentC’ which requires  the  users to  unlock their phones -> open the CurrentC app -> enter another four-digit PIN-> scan a barcode.

Retailers pay anything between 1 to 3 % to card-issuing banks on every credit-card transaction they process as ‘interchange fees’. This is what the worlds’ second largest retailer in terms of market capitalizations –‘Walmart’ has been fighting out so as to stall this massive out flow. The result being MCX driven ’ CurrentC’ . CurrentC supports debit card, pre-paid card, or store-specific credit card with the intent to disrupt credit cards. Hackers made off with an e-mail list of early testers . It should be borne in mind that CurrentC stores encrypted payment information in the cloud, and requires both a driver’s number and social security number for identity verification .All these to be sweetened with exclusive offers, coupons and promotions.

The first three days of availability, Apple Pay had more than 1 million credit cards registered across 220,000 participating vendors when launched last October. By March 2015 over 800,000 Bank of America customers have loaded 1.1 million cards onto Apple Pay, while JPMorgan Chase & Co. has said that there’s been “good growth” in the number of cards its customers are loading. Visa Inc., the world’s biggest payments network, said that 43 banks, representing 75 percent of volume on its U.S. network, have enrolled to use the token system on iPhones to authenticate purchases (http://www.bloomberg.com/news/articles/2015-03-31/apple-pay-running-into-hurdles-at-checkout-counter-survey-finds-i7x95shl).

 All these in a back drop of NFC contact being blocked for Apple Pay across the MCX consortium. Potential Apple Pay users is about 14.4 million given the fact that only 18 % of iPhone are iPhone 6 and above with over 7 million store in the US .The biggest fillip being announcement by Best Buy to join the Apple Pay bandwagon. Best Buy is a notable member of the MCX consortium.Apart from getting operational in the UK and all set to be in Canada in few days from now Apple is speculated to be making its China foray as Cupertino has already registered an entity within the Shanghai free-trade zone that will be charged with coordinating Apple Pay called Apple Technology Service Shanghai Ltd.

 Two things Apple Pay notably lacks are automatic coupon redemption and loyalty rewards besides fraud. Some issuers have found that up to 8 percent of Apple Pay transactions were fraudulent, compared with 0.1 percent on traditional payments cards, said Julie Conroy, an analyst at Aite Group. With the frauds happening at the registration stage with criminals typing stolen credit-card numbers into Apple Pay and trying to make purchases with their iPhones.

On their part in the partner banks have made changes in how they activate customers’ credit-card accounts. In a  reciprocated  move Banks are offering a lower rate to apple for transactions they normally accept from credit card transactions they expecting that they will make up for the lower rates by processing new types of transactions that are currently being done with cash or other payment methods. Credit card fees being charged to hedge against fraud will possibly come down as apple deploys finger print signature. Automatic coupon redemption and loyalty rewards is being worked upon by Android Pay. Apple incorporating the feature in future is a realistic expectation.

Samsung also has potential with its forthcoming Samsung Pay feature  as it uses both magnetic and NFC technology. So also Android Pay whose users will be north of 1 million outlets in U.S. locations and in over 1,000 apps. Both trying to leverage the ecosystem is yet another addition to the collaborative model.

MCX does have its challenges but with Walmart backing time will tell which weighs more ‘disruption’ or ‘collaboration’.

(The views expressed on this site are my own and not those of Capgemini)