#1 – Apple Pay pushes mobile payments over the tipping point
Summary: Following the launch of Apple Pay, user acceptance and user behaviour relating to mobile payments are expected to improve, thanks in large part to the active participation of stakeholders (financial institutions, retailers, and consumers) and the PR power behind them. Although Apple could be credited for making mobile payments mainstream, Apple’s competitors stand to benefit from Apple Pay as much as, if not more than, Apple.
Technically, contactless mobile payments have existed for a few years but have failed to go mainstream because the services lacked key success factors, which Apple manages to deliver:
- Security, ease of use and simplicity, combined: Apple made sure to emphasise its security features provided by a secure element that is not even accessible to Apple, tokenised “card” numbers and an upfront pledge not to monetise the user transaction information; while showcasing a frictionless and intuitive user experience helped mainly by the fingerprint recognition sensor and NFC.
- Adoption by a critical mass of end-users and merchants: Out of the box and since its launch in the US, the service was readily available at more than 260 stores, on many popular Apps and websites and was compatible with sales record-breaking devices.
- Seamless integration: The platform’s position in the payment value chain retains key partners such as financial institutions. Since its launch, Apple Pay has supported the three largest payment networks, integrated with more than a dozen of the largest banks, and interfaced with leading payment gateway and POS terminal suppliers.
Northstream believes that during 2015, other major players, particularly Google/Android, will follow suit with a similar approach. Considering the global relative market share between iOS (15%) and Android (80%) and Android’s better CAGR (+2 ppt), the Android system has the potential to become the leader in mobile payments, thanks to Apple.
Starting from 2015, mobile payments will be expected out of the box as part of the OS services and less as an add-on App/service from third parties. Alternative methods of payments, particularly the rising Invoice-based risk analytics method championed by Klarna will remain relevant in those markets that are conducive for low/manageable default risk.