When Apple launches something new, there is a conversation that transpires in offices around the world.
One group will say: “Oooh, this will be a game changer.”
The other will reply: “Nonsense, we did not need this before, and we don’t need it now.”
“But that’s what you said about the iPad, and now look at you. You have three! Apple knows what you want more than you do.”
“It’s not the same.”
Or some variation on this theme. With the news that Apple Pay is coming to the UK, businesses up and down the country will be having this very conversation. If Apple, the most financially lucrative company on the planet, has told us that Apple Pay is a new and disruptive payment method that will change the way we transact, it must be so. And if it isn’t, they will plow money and marketing resources into it until it is.
But the reality is that Apple Pay is not really all that disruptive at all; and it is, in fact, doing exactly the opposite of changing the way we transact – it is reinforcing the way we transact. Let me explain.
The architecture of the payments industry has remained much the same for nearly half a century. An elite group of credit card companies have a monopoly on the payments industry. Think MasterCard, Visa and AMEX and you pretty much have every debit and credit card in the Western world ticked off. The benefits of this ubiquity are vast, but so are the disadvantages.
Without stating the obvious, these companies make their money through charges to customers, but the vast majority of their turnover comes from obnoxiously high merchant fees. Often, these fees make it impossible for small businesses to maintain healthy margins. For an IT services reseller, 4% is quite a chunk and this outdated system continues to place unnecessary pressure on businesses that already operate on tight margins.
It is a system which harks back to the 1950s, and given the advances in technology and retail banking methods, is now almost entirely unnecessary and obsolete. Banks can now transfer cash directly between accounts in a matter of seconds - why do we continue to have this middleman taking his share of the pie?
So when the folks in Cupertino came along, they had a choice; they could either be truly disruptive by embracing the new payment technologies, or they could become an extension of an archaic distribution network. And they chose the latter. They are, in essence, a reseller for the three major credit card companies.
Of course, it is entirely possible to be a disruptive reseller and to shake up the market with a new business model; many of Scope’s readers do just that. But to call Apple Pay a disruptive payment system is a misnomer. They are simply joining an existing ecosystem. Players like BitCoin and peer-to-peer lenders; these are true agitators in the market. They have said, “Hey, why do we continue to do things the established way?”
If we take you – the merchants - out of the picture, the end-point technology is all that the customer really cares about. Will having all of your credit and debit cards stored on your phone make life a bit easier? Of course it will. The idea of holding your wrist up for payment is a novel one, and will save all of the three seconds that it would take to reach for a wallet or a purse. But is it a game changer? Probably not.
All that said, mobile payments are coming and in a big way. Whether it’s Apple Pay, PayPal or another NFC technology, merchants would be ill advised to ignore the impending tsunami. Small resellers should check with their payment processing/gateway partner to ensure that they are properly equipped to handle these changes and if not, start looking for new a new partner.