Must-have designer technology, heavy hitting icon brand and high profile merchant signings have finally aligned, like so many stars in the payments heavens. Together, and for once the use of the well-worn cliché seems justified, they deliver a ‘user-friendly solution’ that accelerates us several million light years towards payments nirvana.
We can at last empty our straining wallets of their multiple cards, coupons and vouchers and finally dispense with cumbersome forms of personal identity. Free to roam the malls of the world, we will be able to shop as the fancy takes, with just our smart phones to take care of the previously complex matter of funding our consumer gratification. We will, won’t we?
Well, not quite. And this is not a question of nit picking until we find the worm at the core of the Apple. It’s a simple statement of fact that, while Apple Pay (and several other payment solutions) are undoubtedly exciting from the consumer’s viewpoint, they are still fundamentally limited in terms of their deep impact on the underlying payments system.
A somewhat cloudier, but perhaps more realistic, version of the juice on Apple Pay is that it does not represent a transformational advance in the infrastructure of the payments ecosystem itself. Yes, there is no arguing that it carries huge potential for payments volume stimulation, especially in the U.S. But that volume will come at a cost, and in at least two ways.
First, it will (potentially very severely) strain the current infrastructure.
Second, no bite out of this Apple will come as a free lunch. In the U.S., Apple is taking a share of interchange fees from issuers and will surely seek a growing share of transaction revenues from the banks.
Point two is a commercial issue that market forces will doubtless finesse over time. Point one, around the infrastructure, should occupy more of our time and more urgently. The real issue is this: even apparently ‘universal’ payments solutions that appear to crack the conundrum of consumer convenience are in reality isolated and limited.
At present, payments channel models (including mobile) typically rely on a capability to solve unique and isolated problems and specific needs. They build their market profile through providing ‘single product-centric’ solutions – see the diagram below:
What we need now, urgently, is a new approach to building true and universal interoperability into payments. The goal is a scenario where banks and financial technology companies are able to collaborate effectively. Banks can then extend their businesses to create value for all participants in the mobile payments ecosystem, including merchants and consumers.
It’s a bold vision. We believe it can be made real. In fact, if payments – mobile and otherwise – are to finally liberate consumers and restore banks to their truly central role in value creation, it must happen and soon.