Apple Pay: is it the $1 trillion app for Apple?

Tue 11 November 2014 Written by Evi
Evi

 

You may have heard that with the launch of the Apple iPhone6 there’s a new service included - Apple Pay. It’s certainly got industry analysts excited – they’re predicting Apple’s market cap will eventually reach $1 trillion (making Apple substantially the biggest company of all time in the process). We’ve all heard hype like this before, so let’s take a look at Apple Pay and understand what the reality is.

So...what is Apple Pay?

Apple Pay is a contactless payment system. It allows an iPhone user to put their credit card details onto their phone, in a secure manner, and then pay their bills with their iPhone. The idea is that this is quicker (most people carry their phones in their hands) and easier (there’s no contact with a card reader required – you just wave your phone at a reader) than using a credit card.

Importantly, it’s also very secure. Your credit card details aren’t actually held on your phone – so if someone steals your phone they can’t access your credit card. You use your thumb print to authorize a transaction, so unless someone steals your thumb, they can’t steal your money.

Sounds Good!

In principle this is a great idea. Apple’s interests are served well here - they get to take a tiny slice of each transaction made with Apple Pay and that’s a lot of money when you consider how many smartphones are in operation out there. Consumers interests are also served well. They get a secure and efficient payment system.

So what can go wrong?

Well, there are already some signs of the problems that might lay ahead for Apple Pay including:

  • While it may serve Apple and consumers, retailers are going to have to install equipment to accept Apple pay. There’s no advantage over traditional credit card systems in terms of the fees that they will have to pay.
  • Worse for retailers - Apple is refusing to provide them with data they get from other payment processors, which will make it harder for them to target offers and push profit increasing promotions on their customers.
  • Is there any demand from consumers for the solution? It sounds good in theory but consumers don’t tend to spend too much time complaining about credit card processing times at the moment. Is it possible Apple has found a solution to a problem that isn't such a problem?
  • It’s not an international solution as yet. Apple hasn’t brought enough countries into the fold to make this a global solution and that means once a consumer leaves the US – they need to go back to paying by card for the moment.

The Elephant in the Room

The final problem that we may see in Apple Pay in the long run is the question of security. How many times have consumers been told, “Don’t worry, your data is completely secure!” only to find out that it simply isn’t? If this catches on there will be significant incentives for hackers to breach security and enable criminal activity which could net billions of dollars.

Summary

Apple Pay is a positive step in the right direction for contactless payment systems which are almost inevitable. But whether it’s the final step has yet to be proven, and claims of $1 trillion market caps are as yet somewhat over-enthusiastic.