Is Apple about to take a bite out of the retail banking industry?

At the latest Apple Worldwide Developer Conference (WWDC) in San Jose, June 17 2017, Apple confirmed the rumours that they will create their own payments service which will be linked with Apple’s mobile wallet, Apple Pay. This will allow users to send money directly to their contacts via iMessage. Currently Apple Pay only allows users to load their credit or debit card information and make payments using their mobile device as opposed to a card. This service has seen rapid growth and is on track to be available at 50% of retailers in the US by the end of the year. So, here we see Apple is currently supporting their banking counterparts and actually creating an enhanced digital experience for theirs, and the banks customers. Latest developments will see Apple start to encroach even further into some of the banks’ established business areas. With the new capabilities supporting ‘peer-to-peer’ payments – which Forrester predicts by 2019 will reach some US$17 billion in transaction volume – we now see the Tech Titan starting to ‘eat their lunch’.

Whilst ‘peer-to-peer’ payments and US$17 billion may seem like a drop in the ocean, this is a clear indication that the appetite for a digital experience is overtaking some of the more traditional incentives offered by the retail banks. The millennials, aka the future, have fast changing habits, they have little loyalty and even less faith in the banking industry and most importantly they are in control. And that is the key. The bank and all of its services needs to be available at one’s fingertips, wherever and whenever it’s needed… perhaps ‘Bank holidays’ will become a thing of the past? – okay, maybe a bit extreme! Whilst Apple do not have a wealth of banking experience, what they can offer could be perceived as far more valuable to the consumer. The user experience which Apple has brainwashed today’s mobile device user community with, is unrivalled and it would be virtually impossible for financial institutions to go head to head on this. Not only that, but Apple already owns a huge amount of data about consumer behaviours and identities – this gives them a tremendous advantage in terms of cross-selling, upselling and offering a seamless experience to their customers. This advantage is further amplified because many banks are completely handicapped by siloed, inconsistent and inaccurate data stores.

This is not brand-new information….a survey in 2015 stated that 73% of people in their 20s-30s were more excited by a financial services product offered by a technology company rather than a traditional bank.

So, if we look at what has happened in the past five years and then ask the question – What’s in store for the next five?

If Apple take the lion’s share of US$17 billion of ‘peer-to-peer’ transactions then how long will it be before they launch their own ‘bank’ where their users can store their actual money in their Apple wallet and make payments, direct debits even get paid their wages? What is stopping Apple cutting out the middle man?

Well there is a small issue of a banking licence, but that is an operational issue which with Apple’s endless funds and resources is probably not too much of a stretch. There are also the dreaded regulators – everyone in the banking industry knows that the regulators are dictating their every move, and the industry as a whole - putting the digital revolution to one side, is undergoing huge changes in the way it operates.

In reality, the barriers to entry to become a financial institution are significant and it is difficult to see how Apple will put the retail banks out of business. And if Apple want to start to move in the murky and complex world of retail banking, be it at their peril. In fact – this isn’t just about Apple – all the ‘Tech Titan’s’ are watching each other and if it looks prosperous you can bet your bottom dollar that the likes of Google and Microsoft won’t be far behind.

But let it be a warning… Apple is not who the banks should have their eye on, it’s the customer. The ’Customer is King’ mantra has never been more appropriate and every transaction line that slips off a bank statement is one less touch point between the bank and its customers.