Apple's acquisition of Mobeewave, a Canadian-based startup that allows merchants to use their smartphone as payment terminals by a simple tap of the card, could have serious implications for banks, according Christoffer O. Hernæs, chief technical officer of Norwegian online bank Sbanken,
Writing on his personal blog, Hernæs paints a number of revenue-draining scenarios for banks and credit card companies should Apple gain traction in the payment space via its latest acquisition.
With consumers and merchants shunning cash in favour of contactless payments and touch-free interfaces, "the option to authenticate a payment on your own phone rather than handling a potential germy PIN-pad may be the spark that accelerates mobile payments," he says.
If Apple was to gain a role as the primary customer interface to payments, shuffling banks out of the picture, it may be able to charge banks a fee for being the default payment option if third-party wallets gain dominance, he suggests
The substantial revenues generated by banks through interchange fees could also be up for grabs.
"If Apple succeeds in widespread adoption on both the consumer and merchant side, they could in theory bypass traditional payment schemes and banking infrastructure, and process their own payments," states Hernæs. "This will not only have an impact on scheme providers such as Visa/Mastercard but also banks that get a portion of their transactional revenues from interchange fees every time a card payment is processed."
According to the European Central Bank, the total interchange fee paid by acquirers to issuers for consumer card transactions within the EU was about EUR7,800 million, and even after the effect of the IFR market cap, where interchange fees decreased by EUR2,700 million the revenue pool for interchange fees is still significant.
States Hernæs: "One interesting finding from the study is that while Issuers have lost revenue of EUR2,950 million per year. Acquirers, instead, have gained revenue of EUR1,200 million coming from lower interchange fees. Not surprisingly this is the part of the value chain that Apple targets through their newly acquired POS capabilities."
Much was made of the threat from the Mobeewave buyout to companies like Square and iZettle, which sell card readers to merchants for processing contactless payments. Hernæs points out that the real value of Square lies in its unique positioning in the midst of its customer’s income stream, and the revenue-generating opportunities provided by offering small business loans via Square Cash.
Square recently received assent from federal and state regulators to open a bank in Utah, which means that it will soon be able to originate commercial loans to merchants that process card transactions through its payments system.
States Hernæs: "It remains to see how far Apple will venture into this territory, but a glance at how Square is redefining everyday banking services through their ecosystem, combined with the ability to bypass existing infrastructure by closing the loop on payment processing and strengthened position as a mobile wallet provider shows the potential implications for incumbents."