The greatest irony in the payments business is the belief that consumers want a ‘payment system’. Actually, they don’t. What they want, is to buy things. To consume services. To enjoy movies, food, product. Experiences. We all recognize that payments are necessary to enable this. We are conditioned to know this from a very early age. Nonetheless, no consumer spends time wondering about better payment systems unless they belong to the tech or payments industry as well.
Payments are like referees or the government. When they’re doing a great job, you don’t notice them. The idea payment system is one that allows you to consume a product and be automatically charged for it, in a fair, trustworthy and transparent way. Think about toll roads that work on RFID, where you just drive through and it deducts an amount from your car. You don’t even need to slow down.
Despite this, the payments industry as we know it continues to go through violent disruption.
Consider Square – one of the darlings of the payments industry. Jack Dorsey said this would be how the world pays. Now, having lost millions of dollars, its gross margins are under ever more scrutiny as it also needs to pay the interchange fees. Although it is raising another round of funding at a $6bn valuation, there have been plenty of rumours about a possible sale earlier this year.
In so many ways, payments are also becoming a feature rather than an app. Hailo, Starbucks and a host of other apps allow payments as a part of the experience. Most of these are enabled through existing credit card based systems. But in future will simply connect to an on-board wallet on your phone.
Enter Apple. For years, the Wallet space has seen players enter and struggle. Banks, telcos, tech companies, and others have all tried to master the wallet with very limited success so far. Only Paypal, has really managed any real momentum as a payments focused company. The key sticking point has been breaking the vicious cycle of consumer adoption, transaction fees and the retail adoption.
Apple (at the risk of repeating myself incessantly) are in the right place at the right time. They have the scale to drive bargains with the payments providers, and the ability to reach consumers directly. They have the financial muscle to reshape an industry with new ideas. And they have a model which could potentially bypass the retain POS hardware.
Today, Apple makes an announcement with much anticipated news about the integration of the mobile wallet into the IOS6, backed by deals with the major card providers (Amex, Mastercard, Visa). Also anticipated is the return to the NFC technology it has so far eschewed.
If this does happen, the world of payments will be a very different one in a year’s time.