After months of waiting, it was announced on Monday that Apple Pay will launch to UK customers in July. It is welcome news for Apple devotees on this side of the pond but getting here has not been plain sailing, with British banks rumoured to be making it difficult for Apple. Indeed Barclays, which has its own Pingit payments system, will not be part of the initial rollout.
In the US, where ‘chip and pin’ technology has never been widely adopted, the banks have a strong incentive to back Apple Pay. It promises to reduce fraud through the use of multi-factor validation and aims to replace many of the cash transactions that take place daily and have a higher operational cost for banks.
Consumer demand also plays an important role in the US banks’ willingness to get on board. Quite simply, it makes life easier. For many of us, mobile payments are more convenient than carrying cash and US consumers voted with their feet; the service recorded more than one million activations in its first three days.
Given that Apple promises not to access customer data, what is it about the service that makes the UK banking sector uneasy?
First and foremost, banks are threatened by anything that diminishes the relationship they have with their customers. When a digital wallet replaces branded cards, the banks lose an important touch point with their customers and each becomes interchangeable with the others. The bank’s part in the payment process is at risk of being seen as a back-end function and competing banks face the question of how to ensure their card is the one at the top of the user’s digital wallet.
The ability to cross sell is another major issue for any bank looking at a service like Apple Pay. Targeting existing customers with new financial products is at the heart of the personal banking business model but it relies heavily on brand loyalty. If the bank brand is no longer at the front of the customer’s mind, it becomes a much harder sell and translates into higher conversion costs.
Similarly, the current system of online payments directs the customer to sign in on the bank’s own website where they can be targeted with messages about products and services. Apple Pay makes it easier for businesses to charge through their apps, cutting out the need for individuals to transfer money through their online banking platform.
The above threats start becoming a real issue when they are affecting a high value, high spend group of customers. While Apple Pay is only available to the small percentage of people with an iPhone 6 or Apple Watch, they are a valuable and elite demographic. Naturally, banks do not want to lose any traction with these individuals.
In the longer term, banks also need to be aware of the market advantage that Apple would have if it decided to launch its own credit card. With access to a full cross section of your personal data – from your music taste to the place you bought your lunch – it would benefit from a holistic view of the customer that most banks could only ever dream of. Were Apple to gain a foothold in the industry it would become a very credible threat indeed.
Customers want to be served digitally and with players like Apple Pay on the offensive banks must ensure that they have a watertight mobile strategy. It is about more than simply making online banking available on a handheld device; customers are ready for a mobile banking revolution that challenges the old ways of doing things and gives them real choice.
Euan Robertson, chief technology officer of Aquila Insight