Just a scant five years ago,Apple announced their Apple Pay walletand the payments world went crazy. Even with early evidence that the big tech companies were struggling to make a go of digital wallets in the U.S., Apple always seemed to be the breakout success. And on the face of it, Apple Pay was no different. We LOVED the idea that they had finally broken the code and created a payment product that got all the legacy players to eat together at the table. It kicked tokenization into high gear and banks lined up for a shot at the digital wallet top.
Apple showed the world that there could be a business model for digital wallets in a card-centric environment like the United States, even though, it was a model that had already been tested in the early days of debit when issuers paid acquirers to accept debit cards at the POS. It also ran headlong into the wall of inertia that's the U.S. market, as merchants turned their back on NFC and the high fees that came with it, debit issuers figured out that paying interchange and intergration costs burdened an already profit-less portfolio, and once the thrill was gone, most cardholders who loaded the app just as promptly forgot about it.
But that was then and this is now, mobile wallets like Apple Pay are slowly gaining ground and merchants are coming to terms with how best to enable digital payments at their POS. So, it took all of that scant five years to get to the point where the tech giants are now...issuing plastic cards. One can't argue with success and in the U.S., we still LOVE our plastic cards and if nothing else, Apple can move some product. I haven't seen any statistics yet on the Apple Card, but I'm certain they'll be impressive when they come out. In the long game that's payments, Apple and its partners can marinate in that big portfolio of cardholders, trying to figure out exactly which levers move the market.
That gets me to the point of this blog, which is the infographic you can link to here, that depicts how the big tech giants make their revenue. Ultimately, as the author points out, they make most of their money from people like us, their consumers. That got me thinking about exactly how payments fits into their picture.
Of all the big tech companies, Apple is the only one that's been chipping away at creating a real payments eco-system. By that, I mean successfully addressing the needs or wants of each of the primary stakeholders in the market. Unlike Amazon or Google, that have healthy, functioning payment solutions for merchants and corporates or Facebook that has squandered its opportunity in financial services by becoming the company no one trusts with their information or Microsoft that continues to toy with financial services as a side hustle, Apple has to make it work.
The iPhone is the company's primary revenue driver and as such, the value of it has to be continually improved. Like in the early days, Apple understood that they couldn't just enable a private label or co-branded card in their wallet, they had to actually issue a real card at the same time. This drew their best customers closer to them and made the rest of their market take another look at their Apple Pay wallet. Combined with initiatives to improve acceptance in every day spend locations like CVS and Target, and some competitive (even if they aren't especially innovative) rewards, it's a winner.
One can argue whether this is innovation or not. I think it's just opportunisitic more than anything else and I don't see Apple becoming a bank anytime soon, but as long as the iPhone represents a majority of their revenue, look for the company to continue to add essential services to it. Their current advertising around trust and data privacy is to some extent, a reaction to the tech company's data debacles, but it's also a pathway to increasingly personal services. I would look for the company to branch into things like healthcare, insurance, and definitely more financial services in the near future.