It can hardly have passed unnoticed: This week (9-9-’14) Apple announced its new payment method: Apple-pay.
Much has been said and speculated already on what Apple-Pay will add to the areal of payments methodologies in general and in the various payments markets around the world. Since the bogged up transmission of the keynote speech I have been pondering on what this initiative will mean for Europe? (NB Coincidentally one of my business contacts was asking me just that question making this the Question of the Day.)
The acceptance by Apple of technical standards recognized within the payments industry (NFC, Tokenization) while introducing biometrics will help the payments industry in the EU to find its bearings on the technological direction for the coming years. This is an indirect but potentially very positive side effect of launching Apple-Pay.
The payments markets in USA and the EU are different in a meaningful way. The urgency for merchants, operators and users to move up the technology stack are of a totally different order of magnitude than in Europe were EMV has been introduced successfully already. Fragmentation is different, use of payment products, infrastructures, cost of processing, tariff structures, attitude towards payment products and acceptance of innovation in payments etc, etc. Call it the “law of the handicap of a head start”.
Apple-pay will not pick up traction easily in the EU due to sub-critical mass over here. Apple’s position is very different in USA (50% mobile market share) from EU (<20% market share): creating substantial penetration of NFC enabled Apple phones/watches to grow much slower then in US. I expect merchants to be much less inclined to invest in a very small subset of customers who are capable, and willing to use Apple’s exclusive payment method.
Apart from the fact that only new iPhones and wearables will have NFC, so the potential user base will have to be created from zero leaving out the existing iPhone user base (OK, iPhone 5 and Apple-Watch together can do the job: will 10% of iPhone 5 owners over time buy the apple-watch?).
As usual with Apple they commence in their home market, the US of A. Apple says to be working hard to roll out to other countries. As an avid Apple user form a smaller country my experience is that this type of new functionality will take years to trickle down. iTunes movies? iBooks? iTunes Radio? Siri in native language? Anybody?) I would expect at least a year time lag for major EU countries and 2-5 for smaller ones. This time lag will in any case give the incumbent players time to move forward as to absorb the new reality and find an answer.
Apple-pay could become a major success in USA (urgency and market position apple) while at the same time could prove totally underwhelming in the EU.
Time-lines in payment method acceptance by users and merchants are long, very loooonnggg. Even-though the iPhone has created new realities for many an industry, and have helped people to adapt to new services and distribution models with (historically seen) unprecedented pace. But it is not only users that need to adapt to new payment methodologies but also merchants and other parties involved in the payments value chain within a payments environment governed by SEPA-type regulations. Payments markets are not having the same dynamics as other products/markets. In Europe it has to be regarded as a utility (i.e. a designated vital service) governed by strong regulation in EU, not an open market.
My conclusion is that Apple-Pay will not be big in EU in the next 5 years.
What does this mean for the development and proliferation of mobile payments in EU in general?
As inclusive payment transactions are central to the business and earnings model of the closed ecosystems of Google and Apple CS it is most likely that, unless regulators step in, others will not be allowed by these (closed) app based platforms to create competing payment services on the same handsets or wearables in the foreseeable future. I advise you to not hold your breath if you expect these parties to open up voluntarily. Unless the handsets are opened up to third parties to make use of the biometrics, NFC secure elements provide by them we will just not see mobile payments to take off in EU.
In my opinion apple and android handsets have to be opened up for mobile payments to take off in Europe. Unless the EU/ECB steps in to open up the mobile handset capabilities (NFC, biometrics) to third parties mobile payments (as a replacement for card based POS payments) in general will have a hard time to take off in EU.