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Thoughts on Apple Pay – Apple Updates Part II

With the announcement of Apple Pay, the question on everybody’s mind was whether Apple’s new payment system would usurp eBay’s on-line payments subsidiary PayPal. The reason is because the payments space has long been viewed as a zero sum game; competitors won’t stand a chance with one dominant player. While it will take several quarters to know how things pan out (Apple needs to sell a good number of iPhone 6 and Watch units to compete with Paypal’s installed base of close to 50 million customers in the United States), the equation gets more complicated since the target markets and functionalities of both companies don’t overlap all too neatly.

So what is Apple Pay really? It seems to be an end-to-end solution from credit card companies/banks, to payment networks, merchants, and finally the end users/buyers. Banks are naturally risk averse and choose to integrate Apple Pay if only to initiate a controlled payment channel. For a buyer, not having to swipe a card at every POS terminal is a win. On a side note though, Apple would have to conceive a better authentication method than relying solely on fingerprints and NFC. The real problem for Apple is with getting merchants on board. For merchants selling physical goods through a payments processor, the deal seems to be rather simple: they can integrate Apple Pay through the processor’s SDKs. For those selling virtual goods through a gaming application for instance, Apple’s share ends up at 30%, which goes through the roof even in comparison to card not present sales.

In addition to this, payment networks (Visa, MasterCard) are trying to monopolize tokenization services and are inclined to demand digital enablement fees and charge a small fee for provisioning tokens and tokenization API calls.

Apple’s saving grace may be that they put a plan together, partnered with the right stalwarts in the payments game and implemented a solution that leverages a device people interact for the most part during their day. Where others have only seen tepid results, Apple, in large part owing to timing alone, could succeed. In addition to the advantages carved out by Google and MasterCard in contact-less payment infrastructure, the looming transition to the new EMV payment standard  should set the ball rolling in their favour.

This is just a bird’s eye view of what Apple chose to fill their plates up with. While the jury is still out on how Android is expected to fare, Google doesn’t have everything under its belt either.

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