7 Reasons Why Apple Could be a Payments Game-Changer


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  • 7 Reasons Why Apple Could be a Payments Game-Changer

    1. 1. Proprietary and Confidential 7 Reasons Why Apple Could be a Payments Game-Changer
    2. 2. Proprietary and Confidential The Payments Industry Water Cooler Chatter Industry pundits, industry players and industry luminaries seem to have all but written Apple off “Apple is among the world’s fastest growing corporations. But there are signs that its leaders may be running the risk of committing the most dangerous strategic mistake the leaders of fast-growing corporations can make: Taking the customer for granted!” – , 2012 “And although Apple has a long future, the glory days are over. I actually think one of the places they will get hit is in the tablet market…. I think they’ll eventually run out of ideas. I hear Apple is doing an iPad Mini, and let’s say they get away with that. That’s fine, but it’s not really innovation just downscaling.” - Rob Frankel, author of The Revenge of Brand X, 2012 “We blame Apple for losing its mobility mojo. This was simply an inventory overbuild for the iPhone 5 relative to Apple’s forecast.” - Vernon Essie, Jr., analyst , 2013 2 | The Industry Buzz About Apple •  Apple’s best days are behind it. All of what we see now is Steve’s work finally reaching the market - there’s nothing in the pipeline that is “game- changing.” •  It is destined to repeat its failed strategy of the 1990’s when its “closed” system was killed by Microsoft – Android’s open strategy will be Apple’s death knell. •  Apple has no payments strategy – since it decided not to adopt NFC as a payments enabler, and every other handset manufacturer has, it will miss mobile payments
    3. 3. Proprietary and Confidential Really????? Here are the 7 reasons why 2013 and beyond and mobile isn't like the 1990’s and the PC for Apple …. …and why the payments industry should be Sleepless in Silicon Valley, Seattle, San Francisco, Soho and just about everywhere else in the world … 3 |
    4. 4. Proprietary and Confidential 1. Apple has more populated digital wallets than anyone else. Period 4 | 10 50 75 160 200 400 575 2005 2008 2009 2010 2011 2012 2013 Total iTunes Accounts In Millions Adding 500,000 new accounts/day Analysis Each iTunes account has a registered card on file and is used today to buy digital goods, primarily, but also physical goods at the Apple store and online. It has amassed a tremendous number of accounts over a relatively short period of time. Why the Industry Might Loose Sleep •  With its, 575 million digital wallets, even if only half of them are in the US, Apple iTunes is a pretty attractive proposition for merchant acceptance. •  To put things in perspective, that is more than 5x the number of accounts Chase has, 19x the number of total credit card accounts in Canada, 1.37x the number of debit cards issued by MasterCard worldwide. •  In terms of digital wallets, Apple has 5x the number of credit cards on file as PayPal and 3.4x the number of credit cards on file as Amazon.
    5. 5. Proprietary and Confidential 2. Apple’s Fingerprint Sensor Takes Security Off the Table. Bam! Analysis The fingerprint sensor enables users to unlock and access their phone more efficiently and more quickly. Apple has stated that the company and the device will not store fingerprints, instead the iPhone stores the result of a “hash” which can’t reveal the fingerprint to the company. Why the Industry Might Loose Sleep •  Consumers “say” that security is a key inhibitor to their use of mobile phones at the point of sale. Fingerprint enabling sure seems like a very powerful way to take concern completely off the table. •  This, then, gives Apple superior authentication capabilities when enabling secure transactions such as payments. The “what you have” is uniquely tied to an individual and their device. •  The question is whether Apple views this capability as so powerful that it will keep it all to itself when it comes to enabling access to apps outside of iTunes. 5 |
    6. 6. Proprietary and Confidential 3. Apple’s Passbook is a Bar-Code Enabled Payments Holding Tank Analysis Passbook was launched in the Fall of 2012 and is a convenient “container” on the iPhone that is getting people used to storing anything with a bar code in that container – coupons, boarding passes and tickets – at least for now. It has helped to “train” consumers to consolidate things of value that they need easily within reach on their phone. Apple opened up Passbook to brands by distributing a PASS API so that brands would have an incentive to PASS-enable offers and other items that would populate Passbook. Why the Industry Might Loose Sleep •  96 brands so far ranging from American Airlines to Walgreens have created Passbook-specific apps. Over 150 brands have PASS-enabled coupons that are available to consumers in PASS- coupon programs. •  Brands are pleased with the ROI of PASS-enabled promotions. For example, Texas Roadhouse distributed offers based on proximity and saw a 37% return in 24 hours. •  It doesn’t seem like a very big leap to link payment via iTunes to those coupons or offers or tickets. But, brands and payment enablers are at risk of being made invisible once they are in the Passbook container. Apple’s brand dominates. 6 | A Cross-Section of the Passbook Ecosystem
    7. 7. Proprietary and Confidential 4. Apple’s iBeacons Will Drive Local Commerce Analysis iBeacons were introduced in September of 2013 as part of the iOS7 launch. They utilize Bluetooth Low Energy (BLE) to basically establish GPS inside of stores – and actually between any two Apple devices. The magic of this technology is that it does not have to “touch” anything to activate a transaction of any kind. It is a more merchant- friendly alternative to POS innovations that drive commerce – offers and payment. iBeacons, therefore, allow anyone with an iPhone running iOS7 to be recognized by the merchant when they enter a store. Why the Industry Might Loose Sleep •  Innovators are already innovating using iBeacons – and they have only been available for a few months. •  Use cases already in motion include ad networks to push ads to iPhone users and apps that hard-code GPS coordinates to iPhones enable offers to be sent to customers standing in front of items. •  It doesn’t seem like a big leap to link payment via iTunes to POS environments that run the iOS7 operating system. And, those handsets, for the most part, will be those that have the biometric sensor, which makes them ultra secure. 7 | SAMPLE MERCHANT ECONOMICS Ave square meters per store: 16,258 Beacons to cover an entire store = $5,000 NFC Tags for 100k products = $10,000 Source: Gigaom, Estimote
    8. 8. Proprietary and Confidential Apple vs. Android Fun Facts 5. Apple iPhone Users Control the Bulk of Spending Power Analysis Yes, Android may have greater market share, but on the metrics that matter most, Apple dominates. It generates more revenue via the apps store since developers develop more apps for the iTunes app store - they know they can reach more people since more people run the most current version of the Apple iOS. And, when it comes to who totes around the iPhone, those users are more educated and earn more money – by a country mile Why the Industry Might Loose Sleep •  When Apple decides the time is right to leverage its iTunes base for payments, it has a good story to tell. •  Apple owners feverishly stay up to date on the most current OS. 24 hours after the launch of iOS7, adoption was 35% and increased to 52% after one week. Even before the launch of iOS7, 93% of users were running iOS6. •  Apple users control a majority of the spend in the US. Despite only powering 39.9% of smartphones in the US iOS accounted for 57% of mobile commerce transactions to Android’s 43%. Further, when comparing the spending power of Apple users versus Android users, our analysis suggests that Apple users control about 66% of the spend in the US. 8 | vs.40% 31% Mobile phone owners who earn > $75,000 per year iPhone Android 0% 25% 50% 75% 100% iOS6 iOS7 Apple Froyo G-Man H-Comb I-Cream J-Bean Android Operating System Adoption Source: Extremetech, Wall St Cheat Sheet 1 week after release
    9. 9. Proprietary and Confidential 6. Apple Owns Both Endpoints | Consumers and Merchants Analysis Apple makes money today from payments without trying very hard at all. How? By selling hardware. The iPhone is the device that launched Square and just about every other mPOS system using mobile phones – at least at the start. The launch of the iPad has had the same effect on small merchant POS. It has also had the effect of stimulating lots of innovation by those who want to leverage Apple’s iOS to transform merchant/consumer interactions, which only makes Apple devices that much more popular to merchants and consumers. Why the Industry Might Loose Sleep •  Many have criticized Apple for being a “closed” platform and losing ground to Android – in fact, its business model is what prompted Google to vertically integrate with the acquisition of Motorola and Microsoft to do the same with Nokia. •  Developers flock to the iOS first because it knows it can reach the greatest number of consumers – and now a growing base of SMBs. •  It is estimated that there are 62 million points of sale in the US alone. If Apple did nothing but sell into that market with a POS replacement strategy it could do pretty well. But we all know that isn’t where it will stop… 9 | iOS-Powered POS Systems
    10. 10. Proprietary and Confidential 7. Consumers and Merchants Love Apple Analysis Not long ago, a survey was done that asked people whether they would bank at an Apple bank if they opened one. Unbelievably, 10% of people said that they would basically trust Apple to hold and keep their money safe. Why the Industry Might Loose Sleep •  If consumers are wiling to entrust their savings to Apple, getting them to use iTunes as a digital wallet to buy stuff at stores doesn’t seem like much of a stretch. •  91% of iPhone owners in the U.S. plan to buy the next model when it’s time to upgrade while only 76% of Android users planned to pick up another Android. •  Brand Keys ranked Apple as the #2 brand that consumers will be loyal to in the future 10 | $87.1 Forbes Most Powerful Brands Brand Value ($USD Billions $54.7 $50.2 $48.5 $37.6 6% 9% 85% Devotees Loyalists Free Radicals 56% 58% PC Consumer Loyalty Source: Forbes, Forrester