Apple Pay: a very interesting business case on international expansion
Among the more interesting announcements to emerge from WWDC 2015 is that Apple is launching Apple Pay in the United Kingdom. This is a product that many predicted would finally make electronic payment a reality, thanks to the company’s powerful network of alliances that has brought together the major credit card companies, a great many leading banks, and any number of large retail chains. At the same time, many analysts wonder how the company would manage to extend Apple Pay in countries where its iPhone is not the market leader, unlike in the United States, where it controls around 47.7 percent of the market.
Apple Pay’s launch in the United States was spectacular compared to previous efforts by competitors, such as the service that was launched with just one credit card from one bank and to be used with only one smartphone model. Apple’s timing has been perfect in aligning the main players in the electronic payment sector (including banks that accept no less than 0.15 percent of every transaction), and obtaining in return no less than one million cards registered on the app in the first 72 hours. There was some resistance and skepticism on the part of a few retailers, who have tried competing with their own weak alternatives, as well as a few feeble protests by competitors, but Apple Pay now handles two thirds of all contactless payment operations by Visa, Mastercard, and Amex, making it the market leader in a record two months while it continues to enlist more and more companies to its payments system.
Nevertheless, reservations about what Apple can and can’t do in a market where its iPhones are not the best seller remain. Will banks accept a system with limited reach, only accessible to iPhone customers in countries where Android dominates the ecosystem? Everybody knows Android pretty much rules the world, so what chance does Apple have outside the United States? And what about emerging economies, where banking penetration is low and people still don’t use credit cards?
Deciding to launch in the United Kingdom will allow Apple to establish several things: firstly, that perceptions about the iPhone’s penetration in many countries is wrong. No, Android doesn’t rule the world, at least not yet. And what’s more, Apple is increasingly putting it on the back foot: in the United States, which has traditionally been a successful market for Apple, market share between December 2013 and December 2014 grew from 43.9 percent to 47.7 percent. But this figure, which is colossal in terms of the number of units sold and gross profits, is nothing compared to the British market, which grew from 28.9 percent to 42 percent over the same period, more than justifying the company’s decision to launch Apple Pay there. Even in relatively polarized markets like Spain’s, where Android phones make up 86.7 percent of the market, Iphone has practically doubled its market quota, moving from a sad 6.9 percent to a more dignified 12.8 percent during 2014.
Everything seems to suggest that the iPhone, contrary to what some are saying, still has plenty of life in it. Aside from being the company’s star product, giving it much healthier margins than its competitors and used by people who are much more active online, its recent growth has gone beyond that associated with the launch of a new model. And this, besides the existence of a proper infrastructure for contactless payments (an aspect where the United Kingdom, with a strong tradition of pioneering instruments such as the extremely popular Oyster card for public transportation), is what Apple is hoping to repeat in choosing new countries to launch Apple Pay, a product that, thanks to its recurring earnings flow could become a key product line of the company.
The ability of its products to interact with each other has always been key to Apple’s success: its customers start out by buying an iPhone or a MacBook and then go on to buy other products, increasing their share of wallet as well as the amount of money they leave in Apple Stores. Now, with the launch of Apple Pay in the United Kingdom, we will see some interesting clues as to how to negotiate with a wide range of players with very different interests, as well as how Apple intends to move into other countries. For the moment, its conversations with UK banks, among which is logically Spain’s Santander, a leader with 1,300 branches, 14 percent of the mortgage market, and 10 percent of deposits, show that nobody wants to be left out, although there have been concerns about handling customers’ private information and the possibility that Apple wants to move into the banking game itself sometime in the future.
The truth is that Apple is doing very well being Apple and managing just the right amount of customer information it wants to manage — which is far less than some would say it should. If the launch of Apple Pay in the United Kingdom shows one thing, it is that aside from having a perfect sense of timing and knowing how to cut a deal, the world’s biggest company enjoys rude health indeed.
(En español, aquí)
