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What is going on with Apple Pay? Last week, Apple revealed a new virtual card for storing funds received from other users. So what is this? A bank account? A gift certificate? A loyalty card? Tim Green ponders what the move means for Apple, for users and for competitors…

Ever since Tim Cook first unveiled Apple Pay, the finance world has obsessed over this question:

Does Apple want to be a bank?

There are strong arguments on both sides. In the ‘yes’ camp, they contend that banking is clearly going digital (like music, movies and reading) and that Apple is the most trusted digital brand.

They also say Apple already stores hundreds of millions of people’s card credentials, so it’s a short stop from there to managing their money.

And then there’s the revenue. Think how much Apple could earn if it could invest the money sitting in millions of accounts. Or do lending?

On the ‘no’ side, they argue that Apple only ever gets into services to keep people buying insanely profitable hardware. The services are never the end goal. $799 iPhones, $1299 MacBooks and $399 iPads – these are the end goals.

A payments interface like Apple Pay works nicely within the latter model. But a fully fledged bank? With compliance and customer care lines and disputes?

Why the heck would Apple want that?

How much quicker could it ruin its beloved brand than by becoming a bank?

Personally, I’ve always been in the latter camp. Yes, the potential rewards are vast, but the risk is even greater. And Apple has a lot to lose.

About $256.8bn apparently.

All of which made last week’s announcement of Apple Cash utterly fascinating.

Why? Because both the ‘yes’ and ‘no’ camps could claim the launch for their respective causes.

To remind you, at its World Developers Conference event, Apple confirmed that it will support P2P payments inside iMessage.

So when iOS 11 arrives, users will see a Apple Pay thumbnail in the iMessage menu. They can press it to create a payment bubble. They can then set the payment amount, and request or pay a person in the chat.

The move was not surprising. It’s been rumoured for months. And it triggered the expected headlines about how Apple has just killed Venmo, Popmoney, Square Cash, Tilt, Zelle and all the other P2P payment apps in the market.

Screen Shot 2017-06-13 at 16.44.47

Will Apple Pay in iMessage damage Venmo and other P2P apps?

But what was not foreseen was the second component of the launch: the virtual Apple Pay Cash card.

To explain: when a person makes a payment inside iMessage, the money does not go directly to the payment card they use to fund Apple Pay. Instead it goes to a new virtual card that lives in Wallet.

Reportedly, Apple is partnering with prepaid payment card company Green Dot to create this new instrument.

Apple says users can use funds in the virtual card to pay friends via iMessage and at any shops that accept Apple Pay.

Obviously, they can also move the funds back to their bank account. Though interestingly, Apple has not explained the process for doing this.

One can only guess it would rather they didn’t. Instead, Apple is encouraging people to think of iMessage payments as topping up a kind of Apple Gift card separate from their main bank account.

This is very savvy of Apple, if a little naughty.

With this strategy it could/should drastically increase update of Apple Pay. After all, many more people use iMessage than make contactless or in-app purchases.

And it could, in theory, do something with the billions sitting unspent inside these virtual accounts. Like invest them. Or move them to high interest instruments.

The investment website Seeking Alpha says if each user stored $25 on the Apple Pay Cash Card, 300 million users would imply $7.5 billion in stored cash. That’s effectively an interest-free loan to Apple.

That said, it also concludes the risk is too great and the rewards to slim for Apple to pursue this. But you begin to see how this launch moves Apple closer to being a bank of sorts. Or a payment network at least.

 Apple is encouraging people to think of iMessage payments as topping up a kind of Apple Gift card separate from their main bank account. This is very savvy, if a little naughty”.

Imagine how much money could go into these virtual cards if iMessage payments do take off? And if Apple Pay keeps growing the base of stores where its accepted (it’s near 50 per cent in the US), I’m sure plenty of iPhone users will get into the habit of using Apple Pay for everything.

Much depends on people accepting the idea of making payments inside a chat app.

It’s revealing that Apple could have launched a dedicated Apple Pay app to encourage people to pay their friends. But it didn’t. It chose iMessage.

In so doing, it was following the example set by the aforementioned companies. Venmo et al.

Can Apple displace them? I’d give it a good shot among its own user base. If you’re an iPhone user you’ll already know how much easier it is to send messages to other ‘blue bubble’ contacts than those that display green.

But as I said earlier, iOS users are not ubiquitous. In the US, 42 per cent of smartphone owners use an iPhone. In Spain, it’s 10 per cent.

These users need an alternative – especially as there’s no sign of Apple launching iMessage for Android.

Also, services like Venmo have done a lot to promote the social side of their networks. People love the messaging function in Venmo. They would be reluctant to give that up.

It’s hard to see Apple muscling giants like Square, Google, Facebook and SnapChat out of the space either.

Still, it’s all a bit crazy when you reflect on it. 15 years ago we all started texting LOL into text messaging apps for the first time. Who ever would have thought that these frivolous text windows would evolve into payment battlegrounds?


Tim Green

Features Editor, MEF Minute


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