Stock image from placeit

Payments by Apple is Coming

It has been speculated again and again, over the past couple of years, if you look at what Apple has done over the past year, you can see that Apple is positioning itself to be a dominant player in the space. From iBeacon to Touch ID, the foundation of a next-generation payment system is being put into place that would blow Square, Pay with Amazon, and Venmo out of the water.Why is Apple positioned to do this?

  1. Credit Cards. Apple has 500 million iTunes accounts with credit cards attached (vs. Amazon’s 200 million). Again, 500,000,000 iTunes accounts with credit cards. With the iCloud Keychain being added next week, it will have the ability to use even more accounts.
  2. iBeacon. Apple just rolled out iBeacon, a feature allowing anyone to set up a “beacon” using Bluetooth Low Energy (BLE) technology and create location-based services. Steve Cheney talks about it best, but it can set-up hyper-location information about products, and accept payments from people.
  3. iPad/iPhone. The iPad owns the tablet market and is an awesome shopping format. Just check out the app. The annoying part is putting in your payment info and addresses. As the tablet market continues to grow and become a primary device among the public, tablet e-commerce will be huge. iPhone has an even bigger place in e-commerce. You use it much more than your tablet and the market is much bigger. You carry it everywhere, allowing for easy on-location purchases.
  4. Touch ID. If you’ve used the fingerprint scanner in the iPhone 5s, it’s kind of magical. Unlocking your phone isn’t the standout feature to me. As someone who downloads 3+ apps per day, using it for iTunes purchases is huge. It gives you a glimpse into how this can work for purchases. It doesn’t have the market share yet, but it will have the majority of iPhone users by the end of iPhone 6's cycle.
  5. Passbook. Passbook was the beginning of getting brands into the e-commerce ecosystem by enabling Passbook-capable gift cards, show tickets, airplane tickets, coupons, etc. It may not have taken off as well as hoped, but it works incredibly well behind the scenes. And early reports of iBeacon combined with Passbook are promising.

How would it work?

As you’d imagine. Right now the checkout process is really painstaking. You have to enter all of your address details (anyone have separate billing and shipping addresses?). Then you have to get your credit card out and enter all its numbers.

I see it as the example above. Tap the Check Out button, and it gives you a similar payment system that flows like the current fingerprint App purchase. You can pre-choose your credit card and default shipping address and just scan your fingerprint to purchase. It can fill this using a Payment API across all apps. You’ll be able to buy a t-shirt from your favorite artist’s app or a new wardrobe from Banana Republic’s app.

Using iBeacon and its Core Location API, a checkout clerk knows if you’re within three-feet of a Bluetooth enabled terminal (i.e. an iPad), and you just have to say your name, and you’ll get a popup on your iPhone screen asking you to place your fingerprint for authorization. Your receipt is e-mailed to you and you’re off with your goods. You can get in a cab, and pay via an iBeacon in seconds.

Why would companies use this?

If you can get people engaged in your app and allow them to purchase items in seconds, it can improve conversion rates dramatically. There’s a lot less friction within the payment system and a higher likelihood of impulse buying. You’re not going to lose users because they have to wait to purchase an item when they’re at their computer. And you’re not going to lose users because they don’t have time to take out their credit card and type in numbers and addresses. We’ve ALL done this. You can send a push notification letting a user know of a sale, they can add their items and check out in seconds.

“Can you play your game and have a meaningful experience in the time it takes for a barista to make your macchiato?”
— Torstein Reil, CEO of NaturalMotion

In the gaming world, there’s something called The Starbucks Test,where you want to design your game so it can be played in short-bursts while waiting in line for your coffee. This is hard to do with e-commerce apps because of the way the checkout process is right now. Make the checkout process last for only a few seconds and you can easily optimize the experience to pass The Starbucks Test.

Even though Apple will charge a premium on transaction fees, it will be worth it for brands to embrace this, as it will undoubtedly increase online transactions.

It’s not all about the revenue for Apple.

The revenue potential may not be as big as some people may think. The current e-commerce market in the US is ~$270 billion and is expected to grow to $370 billion by 2017. If Apple takes 10% of the market ($37B), and charges 5% per transaction, they’ll rake in $1.85B in revenue in 2017. As a comparison, the App Store is estimated to bring in $1 billion this year, and their total revenues for 2012, were over $150 billion. Local commerce can, maybe, double or triple that revenue number if it really picks up.

  • It would be about building a better experience for brands and for users.
  • Brands would put their focus on iOS development and creating better apps for users.
  • Stores will incorporate Bluetooth technology in stores to enable payment via smartphones (in a way that NFC hasn’t).
  • Users will stick with and be attracted to iOS devices, as the overall experience is better with ease of purchasing — especially when local shopping comes into the picture.

Apple is in position to make a huge impact with all of the technology they’ve implemented over the last couple of years. If you look at it from this perspective, you can see how strategic they have been as they inevitably move towards Payments. Even the rumored 13" iPad makes perfect sense from a retail point of view — there’s no way it would be targeted to consumers. Everything’s coming together to align for a payment system that works fast and is easy to use.