Apple Pay – Kickstarter

Apple Pay might just kick start the opportunity for everyone. 

• The size and brand power of Apple has enabled all of the participants in the complex payments chain to line up together.
• With all participants signing-up to support the system, there is a good chance that the user experience will be as easy and as seamless as promised.
• To date, mobile based payments has been a dream that has been hobbled by participants in the chain focusing on self-interest rather than the user experience.
• As a result, the user experience has been poor, hobbled by security concerns with limited support by the banks and retailers.
• Apple Pay is a proprietary system based on NFC that joins the links of the payment chain and quietly takes care of the security concerns.
• The fingerprint reader on the iPhone 6 is the main authentication tool but also a secure element inside the iPhone 6 and 6+ takes it one stage further.
• It is the combination of these two elements plus the support of the entire chain that might just make this work this time around.
• Apple’s business model is centred on making its devices as desirable as possible which is the major driver of its industry leading handset margins.
• Consequently, Apple Pay is not a technology that it is going to be licenced out to others, meaning that the market for this system will be limited to owners of iPhone 6 and beyond.
• If a user wants to use Apple Pay, he will have to pay up for an iPhone.
• RFM forecasts that in 2016E, iPhones will make up 13% of all the smartphones across the world.
• Keeping Apple Pay to itself will allow Apple to maintain the exclusivity it needs for its profitability but it will be leaving 87% of the opportunity on the table for everyone else.
• Many see the advent of Apple Pay as the harbinger of death for many companies that are trying to make it in mobile based payments but I think the opposite is true.
• The cream of the market may well be skimmed off by Apple but its take-off will create a renewed impetus for the players that address the rump of the market to get their act together.
• This is also a big endorsement of NFC which has struggled for traction due to fragmentation and a bad user experience.
• NFC is now very likely to be a key enabler of mobile based payments which is good news for NXP Semiconductor which is the main manufacturer of chips and is the supplier to the iPhone 6 and 6+.
• Apple Pay may just be the catalyst that finally allows users to leave their wallets at home but the endemic fragmentation that has crippled this segment must be addressed.
• Apple’s market power has allowed it to address this issue in iOS but for everyone else there is a huge hill to climb.