What’s Apple Up to in Payments?

 The POS and payments communities were hoping that Apple would provide some visibility into its strategy for mobile payments at its annual Worldwide Developers Conference (WWDC) held in early June in San Francisco. However, Tim Cook’s and Craig Federighi’s keynotes made no direct mention to how Apple would pursue “payments” – not even a reference to NFC technology.

Although Apple is notorious for maintaining secrecy around strategy, if you take a look at how Apple is attacking a couple other key markets (music via iTunes) – one can start to see the groundwork Apple is laying to disrupt the payments/POS market.

First let’s recognize what is going on in the traditional credit card business. Retailers now realize that the ability to accept credit cards is a commodity. Rather than continuing to compete on price, traditional acquirers/processors are trying to transform themselves into ‘solutions providers’ with value-added apps that can be sold to merchants to generate more revenue and reduce churn. These value added payment apps include tablet POS software that replace cash registers, stored value gift cards and card-based loyalty programs.

Now let’s take a look at the ecosystem that Apple already has in place that will enable Apple (or folks developing on the Apple platform), to roll out value added payment-related applications:

  • TouchID – allowing users authenticate themselves via a fingerprint on a phone or tablet;
  • iBeacon – providing the ability for merchants with iOS devices to communicate with consumers – and allowing consumers to ‘check in’ via Beacon and to ‘check out’ via payments credentials activated by Beacon;
  • Passbook “wallet” – an iPhone repository for coupons, travel and event tickets, gift and loyalty cards, and vouchers;
  • iTunes accounts – over 800 million people with registered payments credentials waiting to be commerce-enabled;
  • iPads – over 200 million iPads have been sold since its launch in 2010;
  • iPhones – Apple is selling 50+ million new iPhones globally each quarter;
  • AppStore – the most popular app marketplace which also gives Apple a way to tightly control what apps can be loaded on iPads and iPhones; and
  • Apple Developers – over 275,000 registered Apple developers just in the US, let alone the rest of the world.

So what does this all mean to the payments/POS market? Based on Apple’s historical strategy, you probably will not see Apple buy a legacy payment network, launch its own POS system or try itself to replace every credit card with an iPhone. It will not have to. The big disruptor will be opening up the Apple ecosystem of tools and technologies to enable others to develop apps and value added services leveraging the Apple ecosystem.

So how does Apple make money from this? Unlike Google’s Android, Apple tightly controls what software can be loaded on an Apple device through its closed operating systems and its AppStore. As a result, Apple is perfectly positioned to extract a fee every time one of these new apps is downloaded from the AppStore or used on an iPad or iPhone.

You can see this slowly happening. At the June 2014 WWDC in San Francisco, Apple announced that it would make its TouchID available to third parties, alongside its Passbook “wallet” and iBeacon functionality. So it’s now enabling its army of Apple developers to produce new innovative apps leveraging the ability to authenticate on an Apple mobile device using a fingerprint.

How does this relate to VARs and resellers? Apple is enabling stiff competition to the new ‘value-added’ payment apps being rolled out by traditional processors. So, VARs and resellers need to be aware of how their current POS and payment offerings fit with the strategies of Apple as well as the other large technologies companies eyeing the payments space (Google, eBay/PayPal, Amazon). VARs also need to be confident that their POS/payments partners are well positioned to rapidly innovate and capitalize on the new payment ecosystems. If not, they will be left behind.