One story has dominated the financial services industry this week. On Tuesday, Apple announced plans to team up with Mastercard, Visa and American Express (along with BofA, Capital One, Chase, Citi and Wells Fargo) to launch Apple Pay. Apple Pay is a mobile payment service that utilizes near-field communication.
Here’s how Apple Pay works. Near-field communication (NFC) between devices involves a whole lot of complicated electromagnetic induction and physics. For us laymen, it basically just lets your smartphone communicate with another NFC device when the two are nearby. For you big-city commuters, it’s kind of like a subway pass. You tap the pass against the reader on the gate and the gate opens. Different forms of this technology have been around for a long time, but it’s only now coming to the iPhone.
In addition to NFC capability, Apple Pay will also streamline payments at various merchants through apps. Check out the video from TechCrunch below for a few examples.
So what does this all mean right now? Not a whole lot. You’re probably thinking, “it isn’t too much of a hassle to swipe a credit card,” and you’re right – not to mention that only a few merchants in the US accept NFC.
Apple Pay is long-term initiative that’s part of a trend of technology companies getting more involved with financial institutions. Apple, Google, et al. want to be a part of how you pay for things.
Apple Pay (along with Google, Amazon, Paypal, etc.) is like a snowball that, one day soon, will start a mobile payment avalanche, especially as smartphones get cheaper and ever-closer to a 100% adoption rate. As of March, only about 17% of US smartphone users have made mobile payments. This tech is still in the early adoption phase.
As such, Apple’s relationships with the big card companies indicate little change to the status quo today. As consumer behavior changes and more merchants adopt NFC, services like Apple Pay will become a much bigger factor in our day-to-day transactions.
Mobile Banking Conversion – Apple Pay’s Impact
We’ve reported in the past that mobile banking is growing rapidly. 15% of mobile banking users have abandoned Internet banking – they just don’t need that service because they can do everything on their phone.
The way we think about money and transactions is changing. 35% of Millennials check their balance every day. Apple Pay reinforces this behavior. People are able to be more engaged with their finances.
It’s vital that financial institutions understand these trends. These services are going to have a serious impact in the next few years.