What can Apple do to make Apple Pay successful?

Isaac Lim
Isaac Lim
Oct 11, 2014 · 7 min read

Apple Pay is Apple’s most recent cloud service offering, looking to revolutionize mobile payments; actually just all of payments as a whole. Your wallet, that thick foldable pocket accessory that contains your bills and cards that have been with us since the start of time, is Apple’s primary target with Apple Pay. Not in the sense that it wants to squeeze every last penny out of you (or is it?); Apple’s dream is to create a payment ecosystem widespread and robust enough that you can leave your wallet at home.

Now, Apple is certainly not the first company to venture into this market and make “revolutionize the way we pay” their tagline. Square tried its hand with Square Wallet and promptly gave up altogether. PayPal still seems to be in the game, but it’s no secret that’s not doing too well. Google Wallet seems to be in a slightly better state, with merchants like Walgreens supporting payments through it via NFC. But still, certainly no revolution yet. Would you literally leave your wallet at home and bring only your smartphone with you to go shopping, even if you had a combination of all of the existing payment apps? No, certainly not yet.

So what does Apple think that they have, that failed contenders before them don’t? Why do they think that they wouldn’t meet the same demise as their predecessors did?

Going beyond software and hardware.

Apple made deals with the largest banks and the largest retailers. One of the biggest things that Apple has going for them, is the sheer amount of goodwill in their brand name. As a result, when they approached the big banks and card providers, VISA and MasterCard for example, and asked these companies to support the upcoming Apple Pay, of course they said yes. Needless to say, Apple made their pitch for the security features of Apple Pay, and this clearly convinced them on this part. But more importantly, these banks and retailers have seen time and time again, Apple’s explosive success and their amazing pull on the market, with every new product they reinvent, and every new market they disrupt. So these companies trust Apple to follow Apple Pay through to success, and consequently, benefit them as well.

I believe the same can’t be said about younger companies like Square and PayPal. Google on the other hand, certainly has enough weight and a good enough track record to gain the support of these companies. However, I believe Google didn’t do enough to get Wallet widely used. They prioritized the software and the hardware, instead of making deals with said companies. There’s a certain critcal mass that a contender in this market has to leap over in order to claim victory, and Google didn’t make it. Apple however, appears to be poised to do so.

Keeping NFC APIs in iOS 8 private.

One of my main observations of how Apple can ensure the success of Apple Pay is: don’t open up the NFC APIs to third-party developers. Now why in the world would I suggest such a thing, being an iOS developer myself? Simple. It is actually in the consumer’s best interest this time, to have as little competition as possible. We should want Apple to be a monopoly in this market. There’s somewhat of a vicious cycle here. In order for Apple Pay to replace the ol’ wallet, everyone needs to be using it — not any other payment offering from any other company — and for people to be using it, it needs to be widespread enough in all the restaurants, shops, banks, bakeries, bookstores, etc., which won’t happen until enough people use it. So it seems what we need is simply more folks to board this bandwagon. How do we that? Make sure people don’t use other ways to pay via NFC on their iPhones. At the time of writing, on iOS 8.0, Apple has full, unparalleled, proprietary access to the NFC chip in the iPhone 6 and 6+, and, come early 2015, the Apple Watch. If Google wants to add NFC payment to their Wallet iOS app, they simply can’t. They would be stuck with no (good) way to enable physical payments in stores.

Now you might ask, Google Wallet has had NFC payments on Android phones for the longest time; why hasn’t that been successful? To add on to the reasons I gave previously, Android gives developers control over NFC, and so this invites many other apps to do the same, leading to a highly fragmented market. The last thing merchants, banks and credit card providers want to see is single-digit percentages of users on various payment apps. It’s too much of a headache.

Why should we encourage Apple to monopolize this market? Isn’t having a monopoly always bad for competition and prices? Well in this case, we actually don’t care about price, because we don’t directly pay Apple anything to use Apple Pay, apart from buying shiny new iPhones. Yes, merchants do get charged a very small fee per transaction, but that’s no different from with normal credit cards. The key here is that Apple is not trying to directly monetize Apple Pay (or so it seems) — it wants to make it as attractive an option as possible to anyone so that they can take hold of the payment market, and as a result, drive sales of their Apple Pay-enabled devices. So allowing Apple to monopolize mobile payments is actually in our best interest, because we gain ubiquity in simple checkout processes. As collateral, we lose having competition in the market, and thus the ability to control Apple in the event that when they finally own every cash register, they suddenly decide to take 30% of all payments. But of course, we all know that’s not going to happen.

Now of course, the drawback of Apple not opening up NFC APIs (NFCKit? ScanKit? BeeeepKit?) is that third-party developers can’t use it for other purposes, like the ever-awkward business card sharing by pressing phones together. I can’t actually think of many more real-world applications of NFC being widely used now, off the top of my head, probably because there are no obvious winners. Right now, the NFC market is still very young, although it’s been around in phones (Android only) for a long time coming.

Integrating Apple Pay APIs

One of Apple’s greatest strengths since the Steve Jobs era is the totality of its ecosystems. Almost every Apple product you buy nowadays encourages you to buy into the Apple ecosystem, and stay in it. This trend started with the launch of the iTunes Store in 2003, where Apple wanted to lock you into its digital music market. Now that the Store has matured, Apple’s ideal customer goes straight to the iTunes Store for their music, videos, apps, books, magazines, podcasts, ringtones (seriously?), and more. Once you’ve spent an appreciable amount of money there, it’s incredibly hard to get out. Then Apple launched iCloud in 2011, pretty much taking over every service you need on your mobile device. You can see the trend here: Apple wants you to buy a new iPhone, iPad, Mac and Watch, immediately sign up for an iCloud and iTunes account, and forever lock yourself into the Apple ecosystem. If you are okay with it, it is definitely a viable option: you never really need to look around for any alternatives. You are however, practically selling your digital soul to Apple.

Come next month, they will do it all again with Apple Pay. Not only will it offer cool NFC-driven payments via your credit cards in physical stores, it will also leverage new iOS 8 APIs to allow any of the 1 million apps (as of June 2014) on the App Store to integrate digital payments through the cards you’ve already told the ecosystem about. Want to buy new Beats headphones in the Target app? Want to place a delivery order from Panera Bread? Need to hail a ride on Uber? All these transactions can be completed using Apple Pay, with literally a touch of a button, and a scan of your thumb. Apple is yet again trying to deliver another end-to-end ecosystem, covering every gap they can think of. The idea here, is once you have all your credit cards and loyalty cards nicely set up in Apple Pay, you never have to reach for your actual wallet again.

Too ambitious?

It would be interesting to see how quickly Apple Pay rolls out to merchants and consumers in the US come next month, and then internationally after. Seeing that Apple has already sold more than 10 million units of iPhone 6 and 6+ in their opening weekend, it certainly seems poised to begin its fight in this market. Here’s to hoping that in 5 years, we look back and laugh at how we used to carry around the clumsy analog contraption we call a wallet today.

    Isaac Lim

    Written by

    iOS dev @Airbnb. I like making apps that look nice, and have some thoughts about tech.

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