On the 14th of July, Apple launched their revolutionary contactless payment system in the United Kingdom. Only six months after launching in the United States, the UK quickly became the first country outside Continental North America to start accepting this widely lauded but not widely launched system of payment. Only the world’s most valuable company and most valuable brand could even think about revolutionising the world’s most valuable commodity – money. But that’s exactly what they are doing. And as usual, although they are not the first to step into this market, they’re already way ahead of the competition. But what is Apple Pay and why are people, as usual, so excited about it?
Before it was even available in the UK, thousands of stores had already signed up to allowing people to pay for items costing up to £20 with a simple wave of their phone. Such was the expectation of the British public, that less than a month after launching, thousands of London commuters are already swiping their iPhones to pay for bus, Tube and train journeys on a daily basis. In fact, Apple Pay is already more widely available in the UK than it was in the United States when it first launched there last year. Unsurprisingly, Apple are… unsurprised. “We actually think that the UK can be our leading market for Apple Pay” was the confident tone set by vice president of Apple Pay, Jennifer Bailey. One aspect they won’t have seen coming however, is that the UK banks actually played hard ball against the big boys and won a better deal than what was agreed with US banks on the fees Apple get on each transaction. It’s rumoured (by the Financial Times) that Apple get about 15 cents on every US $100 in the US but only a few pence per £100 in the UK. So how does Apple Pay work, why are so many banks and retailers bending over backwards to accommodate it and where is Australia in the queue to acquire ‘the next big thing’?
How it works
Apple Pay lets consumers pay for goods and services using their mobile phones. It uses Near-Field Communications (NFC) technology that works in the same way as a contactless bank card. When it’s time to pay, you simply hold your iPhone near the contactless reader with your thumb on the fingerprint-reading home button. It’s that simple. Crucial to its success and popularity however, is the fact that your credit card’s details are not held on the smartphone nor by Apple. Instead, the technology uses something called tokenization, whereby credit card numbers and expiry dates are substituted by a unique 16-digit number that has no extrinsic meaning or value – it’s just a token. Like the iPod and iTunes, Apple didn’t create this technology (the credit card companies did), it merely created the environment in which it will thrive.
Why it’s going to take off
Firstly, let’s look at some stats. It’s estimated that US $12bn is spent using credit cards in US stores… per day! Apple’s CEO Tim Cook has been targeting the apparent lack of security in credit cards in order to fuel the demand for mobile payments by claiming tokenization will ensure that Apple Pay is “significantly more secure than the old days of the plastic card and magnetic stripe”. Cook is also claiming that $2 of every $3 spent in contactless transactions in the US in the lead up to Christmas were made via Apple Pay. Apple clearly believe their own hype around mobile payments and given their track record for being in the right place at the right time, it’s easy to believe them too. Already, over 220,000 US retailers have opted into Apple Pay and with big boys like McDonald’s on board, you’d be forgiven for thinking it was only a matter of time before smaller retailers followed suit. PayPal certainly think so, estimating that mobile spending will rise 42% globally this year alone.
Apple Pay in Australia
Australia is something of a conundrum. While PayPal, Commonwealth Bank, Westpac, Cuscal and Optus all offer their own contactless smartphone payment solutions, our mobile payment market remains in its infancy. Visa recently conducted research that found that 53% of Australians were interested in using a smartphone for an in-store purchase but relatively few actually do. That’s strange because we are a nation of early adapters. We took to contactless credit cards like a duck to water. In fact, the Australian Payments Clearing Association has reported that Australia is the highest user of the technology per capita in the world.
Some experts believe that consumers are simply worried about the security of mobile payment technology and that these worries were greater than what was anticipated by Apple. Indeed, on multiple occasions, the tech giant has declined to give a date or even a ball-park time of when Apple Pay might be launched in Australia. They simply point to the fact that the security foundations are being laid – Visa are apparently putting the final touches to their Australian tokenization services but haven’t set a date for when that might be finished. At least it’s more promising than Google, who flat out admitted that it had absolutely no plans to launch its digital wallet in Australia.
Research company Timetric, says it’s only a matter of time before Apple Pay is available here, believing that Australia is on a waiting list – just like Canada and the UK were before them – due to our ‘high proportion of iOS devices’. However, Foad Fadaghi, Managing Director of technology analyst firm Telsyte, has highlighted a potential hurdle to the uptake of mobile payments. “While people keep their wallets close, they often leave their phones lying around. You don’t see people leaving their wallets lying out on a restaurant table — they keep their credit cards nice and safely filed away in their wallets.” It’s a fair point. Only time will tell I guess. Maybe for once we’ll follow a trend, instead of leading the way.
How all this might affect you and your business
One thing is certain, we use our phones more and more every year, especially when it comes to buying things. And it doesn’t show signs of slowing down. Research recently released by Visa reveals an expanding appetite for mobile phone payments with 43% of Australians having bought products or services using a smartphone.
So why not head into one of the banks that have already rolled out a mobile transaction service and talk to them about it? You might as well get a head start for when Apple do finally swoop in and take over the Australian mobile payment market. In the meantime, read up on Apple Pay, get familiar with how it works and the benefits to your business and keep an eye out for when it might launch. Get ahead of the curve and out in front of your competitors by being ready to offer the service when it first lands.
Apple were the ones that completely revolutionised the personal computer industry, put 10,000 songs in your pocket, gave people an iPad they never wanted and now can’t live without and made a mobile phone a more important part of your life than your family. They now want to change how people pay for things and you might want to listen to them because you don’t want to get left on the shelf when your customers next go shopping.