The dust seems to be settling over the iPhone 6 and Apple Watch launch hoopla. Clearly, Apple investors haven't given Tim Cook a thumbs up over the iPhone 6 and Apple Watch, though market success has nothing to do with what investors think. While the iPhone 6 and iPhone 6 Plus are bigger, thinner, faster, better looking and have a great display, they are incremental improvements at best. And while the Apple Watch is the start of an Apple ecosystem in wearables, it isn't all rosy there too.
The business thinking behind these launches is clear. The bigger screens are because more users are using bigger screens to browse the Web and Apple's 4-inch screens were in the losing end of the boxing ring. And with Apple Watch, Apple has shown it understands fashion trends with a wide variety of cases, straps, etc, that would please everyone from a party-loving socialite to a CEO and even an Indian politician who loves bling. As renowned journalist Walt Mossberg put it the Apple Watch certainly doesn't look like what he calls celibacy bands coming from the Android smartwatch horde.
But the biggest business impact may likely come from Apple Pay, Apple's new mobile payments system. The iPhone 6 and the Apple Watch are not disruptions, but Apple Pay is one and will likely make a big impact in the US market which will spill over to the rest of the world, though perhaps not in the same form. And Apple investors seemed to agree with the Apple share spiking at the Apple Pay announcement.
Apple Pay is designed to make swiping a credit card a thing of the past, at least in the US. Apple knows how to open a whole new market and it's certainly not with a pilot programme. Apple realised it needed mass availability without which mass acceptance would be impossible and hence Apple has Mastercard, Visa and Amex on board, along with the top six card issuing banks in the US. Apple will also make the service available at 220,000 merchant locations in the US with big retail names like Walgreens, Subway and McDonald’s involved, besides many others. In fact, Apple claims that the banks and payment switches involved in Apple Pay account for 83 percent of all credit card purchases in the US. That's massive potential to disrupt.
Plus, users don’t have to store payment card data in their mobile wallets. Rather once the Apple Pay system is set up with credit card details, Apple Pay uses a proprietary payment system that spews out a one-time payment number for each purchase. All consumers need to do is wave (or touch) their iPhone near a Point of Sale (POS) reader and then key in a PIN or use their fingerprint through Apple Touch ID. And merchants don't need to store credit card information either, so the fear of data breaches is gone. Target would certainly be heaving a big sigh of relief. But merchants would also have to invest in a new POS terminal for these contactless transactions and while the biggies would do so, smaller merchants may not appreciate the investment needed, especially if it doesn't come cheap.
And since there is the second factor of PIN or fingerprint, consumers don't need to worry about passing by a reader and accidentally buying something. In fact, since it is two factor, it's not very different from the chip-and-PIN credit card system that RBI now recommends in India where the chip generates a single use authorisation code and the payment has to be authorised by the consumer with a PIN.
Forrester Research believes that Apple Pay will become much more than “tap and pay,” and claims Apple's goal is to become the marketing and commerce platform of choice for brands seeking innovative ways to engage US consumers both in store and on the go. "By integrating the Passbook app’s ability to manage digital assets, such as cards, coupons, tickets, and loyalty programs, with new security, identity, and location tech enablers, Apple will eventually enable merchants worldwide to deliver a more seamless yet engaging commerce experience for the nearly 800 million consumers that are already in Apple’s ecosystem," says Forrester.
But is it all roses and is Apple all set to destroy current payment systems and should you start throwing your credit cards away? Not quite. Avivah Litan, Vice President and Distinguished Analyst at Gartner Research cautions in her blog that merchant acceptance is what drives adoption of new payment systems, much more so than consumer acceptance does. For Apple Pay to succeed, merchants are going to have to want to accept it and security features alone are not enough to incentivise merchants to adopt Apple Pay, she says.
Litan explains that for most of the 30 some million merchants in the US that accept credit cards, merchants still have to spend money on all the onerous security functions required to be PCI compliant unless all their shoppers use Apple Pay, which won't happen anytime soon. She adds that US merchants are already spending money on upgrading to EMV chip terminals and have to get ready for that upgrade and liability shift in October 2015. On the flip side, she also agrees that EMV-ready terminals come with NFC acceptance capability and merchants have to be able to accept contactless NFC based EMV payments as well and Apple Pay may well support EMV.
Many large merchants in the US are also upgrading their PoS terminals to manage point to point encryption (P2PE) of the card data since it affords the quickest and strongest protection to payment card data used at brick and mortar stores, writes Litan. P2PE is effective as soon as the merchants implement it. They don’t have to wait for card issuers and consumers to start using chip cards. Hence, both Gartner and Forrester recommend that to succeed Apple should be able to lower the merchant's operating costs (and where merchant fees play a big role). And building loyalty features and enabling merchants to manage their own loyalty programs is another way.
There are also some fears that customers who were spooked by the recent news of pictures of celebs from hijacked iCloud accounts could worry about their credit card details with Apple when it comes to Apple Pay. The fact is that the Apple iCloud hack wasn't the service getting hacked but individual customer accounts being hijacked through possibly a brute force attack where a computer application tries out various options and finally guesses your password. So Apple cannot be blamed if people set weak passwords and Apple has already announced that it will try and ensure such an incident doesn't occur again.
But will Apple Pay come to India? Unfortunately for Apple fans, that's unlikely anywhere in the near future. Apple Pay is only available in the US. As Forrester Research points out, there are more advanced contactless payments markets like Australia, Canada, parts of Europe, and Japan untapped and wide open for new and existing competitors to pursue. And besides with Apple having less than 5 percent of India's smartphone market, the chances of Apple being interested in a mobile payment system in India is remote. Plus, Indian merchants would hardly be interested in investing in a new POS terminal for the few customers who use iPhones.
Litan of Gartner however says that Google is likely to copy Apple on the security features and then will have to enlist their handset manufacturer partners to link NFC chips to the Google Wallet. She explains that Apple has it easier in this regard since it has a closed system where Apple manufactures handsets and the software that runs on them. "But once Google gets in the game and Android phones are enabled with more secure payments, we may actually see mobile NFC payments catch on." With Android accounting for nearly 90 percent of India's smartphone market, an Indian contactless mobile payment system may most likely be a Google-driven one.
The business thinking behind these launches is clear. The bigger screens are because more users are using bigger screens to browse the Web and Apple's 4-inch screens were in the losing end of the boxing ring. And with Apple Watch, Apple has shown it understands fashion trends with a wide variety of cases, straps, etc, that would please everyone from a party-loving socialite to a CEO and even an Indian politician who loves bling. As renowned journalist Walt Mossberg put it the Apple Watch certainly doesn't look like what he calls celibacy bands coming from the Android smartwatch horde.
But the biggest business impact may likely come from Apple Pay, Apple's new mobile payments system. The iPhone 6 and the Apple Watch are not disruptions, but Apple Pay is one and will likely make a big impact in the US market which will spill over to the rest of the world, though perhaps not in the same form. And Apple investors seemed to agree with the Apple share spiking at the Apple Pay announcement.
Apple Pay is designed to make swiping a credit card a thing of the past, at least in the US. Apple knows how to open a whole new market and it's certainly not with a pilot programme. Apple realised it needed mass availability without which mass acceptance would be impossible and hence Apple has Mastercard, Visa and Amex on board, along with the top six card issuing banks in the US. Apple will also make the service available at 220,000 merchant locations in the US with big retail names like Walgreens, Subway and McDonald’s involved, besides many others. In fact, Apple claims that the banks and payment switches involved in Apple Pay account for 83 percent of all credit card purchases in the US. That's massive potential to disrupt.
Plus, users don’t have to store payment card data in their mobile wallets. Rather once the Apple Pay system is set up with credit card details, Apple Pay uses a proprietary payment system that spews out a one-time payment number for each purchase. All consumers need to do is wave (or touch) their iPhone near a Point of Sale (POS) reader and then key in a PIN or use their fingerprint through Apple Touch ID. And merchants don't need to store credit card information either, so the fear of data breaches is gone. Target would certainly be heaving a big sigh of relief. But merchants would also have to invest in a new POS terminal for these contactless transactions and while the biggies would do so, smaller merchants may not appreciate the investment needed, especially if it doesn't come cheap.
And since there is the second factor of PIN or fingerprint, consumers don't need to worry about passing by a reader and accidentally buying something. In fact, since it is two factor, it's not very different from the chip-and-PIN credit card system that RBI now recommends in India where the chip generates a single use authorisation code and the payment has to be authorised by the consumer with a PIN.
Forrester Research believes that Apple Pay will become much more than “tap and pay,” and claims Apple's goal is to become the marketing and commerce platform of choice for brands seeking innovative ways to engage US consumers both in store and on the go. "By integrating the Passbook app’s ability to manage digital assets, such as cards, coupons, tickets, and loyalty programs, with new security, identity, and location tech enablers, Apple will eventually enable merchants worldwide to deliver a more seamless yet engaging commerce experience for the nearly 800 million consumers that are already in Apple’s ecosystem," says Forrester.
But is it all roses and is Apple all set to destroy current payment systems and should you start throwing your credit cards away? Not quite. Avivah Litan, Vice President and Distinguished Analyst at Gartner Research cautions in her blog that merchant acceptance is what drives adoption of new payment systems, much more so than consumer acceptance does. For Apple Pay to succeed, merchants are going to have to want to accept it and security features alone are not enough to incentivise merchants to adopt Apple Pay, she says.
Litan explains that for most of the 30 some million merchants in the US that accept credit cards, merchants still have to spend money on all the onerous security functions required to be PCI compliant unless all their shoppers use Apple Pay, which won't happen anytime soon. She adds that US merchants are already spending money on upgrading to EMV chip terminals and have to get ready for that upgrade and liability shift in October 2015. On the flip side, she also agrees that EMV-ready terminals come with NFC acceptance capability and merchants have to be able to accept contactless NFC based EMV payments as well and Apple Pay may well support EMV.
Many large merchants in the US are also upgrading their PoS terminals to manage point to point encryption (P2PE) of the card data since it affords the quickest and strongest protection to payment card data used at brick and mortar stores, writes Litan. P2PE is effective as soon as the merchants implement it. They don’t have to wait for card issuers and consumers to start using chip cards. Hence, both Gartner and Forrester recommend that to succeed Apple should be able to lower the merchant's operating costs (and where merchant fees play a big role). And building loyalty features and enabling merchants to manage their own loyalty programs is another way.
There are also some fears that customers who were spooked by the recent news of pictures of celebs from hijacked iCloud accounts could worry about their credit card details with Apple when it comes to Apple Pay. The fact is that the Apple iCloud hack wasn't the service getting hacked but individual customer accounts being hijacked through possibly a brute force attack where a computer application tries out various options and finally guesses your password. So Apple cannot be blamed if people set weak passwords and Apple has already announced that it will try and ensure such an incident doesn't occur again.
But will Apple Pay come to India? Unfortunately for Apple fans, that's unlikely anywhere in the near future. Apple Pay is only available in the US. As Forrester Research points out, there are more advanced contactless payments markets like Australia, Canada, parts of Europe, and Japan untapped and wide open for new and existing competitors to pursue. And besides with Apple having less than 5 percent of India's smartphone market, the chances of Apple being interested in a mobile payment system in India is remote. Plus, Indian merchants would hardly be interested in investing in a new POS terminal for the few customers who use iPhones.
Litan of Gartner however says that Google is likely to copy Apple on the security features and then will have to enlist their handset manufacturer partners to link NFC chips to the Google Wallet. She explains that Apple has it easier in this regard since it has a closed system where Apple manufactures handsets and the software that runs on them. "But once Google gets in the game and Android phones are enabled with more secure payments, we may actually see mobile NFC payments catch on." With Android accounting for nearly 90 percent of India's smartphone market, an Indian contactless mobile payment system may most likely be a Google-driven one.
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