Among many very interesting announcements at Apple’s event today was one of special interest to Trustev: Apple Pay. A very smart move, it will make payments more convenient for Apple’s customers and increase security. And for Apple it gets them a toehold into the enormous market of payment processing.
Tim Cook mentioned that “our dream is to replace these,” while showing a picture of a leather wallet full of cards and cash. But before anyone gets too breathless and speculates that “Apple will kill the credit card,” here are four important reasons why it won’t:
1) iPhone is still a small market slice
The market share of iPhones in the US may be similar to Android, but globally it is a small percentage: 11% versus Android’s 87% market share. Android won’t be implementing Apple Pay anytime soon.
2) The same layers of the stack are in place
In Apple’s typical style, they have chosen to partner with existing players and add a more elegant UI, rather than disrupt them and kick them out of the value chain. So Apple has partnered with Visa, Mastercard and American Express, and maintained the money flow of today, where 2.something percent of each transaction goes to fees. With no money flow changes, it’s hard to ‘bribe’ consumers to switch over to your new system, through rewards and so on. In other words, consumers will gain a UI improvement, but no material gains from Apple Pay versus using a credit card, which means no stampede to drop credit cards and pay with an iPhone.
3) Still need credit cards for edge cases
You may be able to leave the house and go to a drug store without your wallet, but in general, you’ll still need credit cards in some cases, so you’ll need to carry them with you virtually always. This makes old habits a lot easier to keep. Personally I’ve had the option of using contactless payments for years, on and off (when using Android) where I live in New York City, but I’ve never found card swipes to be “painful” enough to warrant switching.
4) Merchant support is needed
A number of large merchants signed on to accept Apple Pay in stores and online, but most don’t, and it will be quite some time, if ever, before they do. Some retailers actually have incentives not to add Apple Pay — for example, Starbucks has a hugely successful app that handles payments, and may not want to be disinter mediated by Apple. Same for Square, which controls many point-of-sale transactions and may not want Apple muscling in.
From our perspective as an anti fraud technology company, it’s interesting that we’ve found fraud on smartphones and tablets to be worse than on regular computers, in many ways. As the devices (especially Apple) restrict a lot of data flow to merchants, it is much harder to tell fraudsters from real customers. One good benefit of Apple Pay is that many transactions on Apple devices should be safer than they have been until now.
But overall, don’t plan on getting rid of your credit cards just yet. You’ll still need them for many years.