Chase Pay and the Power of Smartphone Platforms

This week saw the announcement of Chase’s foray into the mobile payments space, in the form of Chase Pay. Though one small example in the specific field of payments, the launch of Chase Pay is symbolic of a broader trend and the often futile attempts to fight against it.

An analogy to wireless carriers

Chase, and banks in general, are facing much the same challenge wireless carriers have over the last several years. Carriers provide the connectivity that make smartphones useful and have, in the past, heavily subsidized the cost of those devices. Yet consumers have increasingly associated the positive elements of their smartphone experience with the smartphone vendors, while associating the negative elements with the carriers. In addition, as I wrote about a few weeks ago, developments such as the iPhone Upgrade Program increasingly threaten to relegate carriers into a passive, secondary role, while elevating device vendors into an ever stronger primary position. The wireless carriers have regularly tried to fight their relegation to this role and often these efforts have backfired, making the carriers’ alternatives to products and services provided by the smartphone platform vendors even less attractive.

The motivation behind Chase Pay

I see an analogy here to what’s happening with Chase Pay and other banks’ efforts to promote their own payment apps. On the one hand, Apple Pay and in the future, Android Pay, promise to finally bring mobile payments to the mainstream, making those payments more secure in the process. In theory at least, the banks are beneficiaries of this increasing security and the ease of making payments – after all, these payment systems don’t replace the banks’ cards but rather piggyback off them. However, banks find themselves in much the same situation as the wireless carriers – though benefiting in some ways from smartphone platforms embrace of mobile payments, they are at the same time relegated to the same sort of secondary role as the carriers. All the positive associations smartphone users have with mobile payments redound to the benefit of the smartphone platforms, while any lingering frustrations are associated with the banks – whether the monthly credit card bills, cumbersome processes for adding new cards, and so on.

Chase Pay, on the other hand, is an attempt by Chase to fight this relegation. Chase – along with the other banks – is no doubt worried about the long-term impact of this trend and its potential for demoting the role of the banks even further. In theory at least, Google and Apple could eventually take over even those parts of the payment ecosystem still controlled by the banks, cutting out the middle man entirely. But, as with the carriers, Chase is allowing this motivation to drive it to create inferior experiences such as Chase Pay. Precisely because the platform owners are able to make use of unique aspects of their platforms and the associated devices, those experiences created by secondary players – whether carriers or banks – are often necessarily inferior.

The power of smartphone platforms

This, ultimately, is what makes smartphone platforms so powerful – they allow the owners of those platforms to create tightly-integrated products and services which are often better than competing alternatives can every be, because they take advantage of hardware or software features of third party apps. This is particularly true in iOS, which includes unchangeable default applications for functions such as the dialer, the web browser, and email. But it’s true for all platforms to some extent. It’s why some of the companies making third-party apps are trying to create quasi-operating systems of their own as layers on top of smartphone platforms. Facebook is probably the best example of this, creating several apps of its own and allowing others to create what are effectively plugins to Messenger. In some ways, the best opportunities for Google and Microsoft on iOS are similar, creating their own tightly-integrated sets of applications which mimic some of the benefits of operating systems. Microsoft in particular, which has so far failed to create a truly competitive operating system, needs to create such a quasi-OS if it’s to be successful on other platforms.

A trend that will continue

As smartphone platform owners continue to broaden the scope of their own apps (something I also wrote about a while back), this trend of third parties feeling their turf is being invaded will only continue and, with it, their often inadequate and misguided countermeasures. None of this is to say developers should give up and go home. But developers should be aware the categories of apps platform owners want to engage in directly are expanding and these are going to become increasingly challenging domains for third party app vendors to compete in. At the same time, there are huge areas where third party developers still have free rein and where they can add significant functionality to those platforms. Even in areas where platform owners provide their own apps, there are significant subsets of users who will choose third party apps for some of those same functions. Microsoft just announced Outlook has 30 million users on Android and iOS, even though both Apple and Google provide strong first party email apps.

The key for these competing companies is to find (a) those categories where users want alternatives, (b) which specific features they’re looking for, and (c) the characteristics of those users. That’s a tall order, but taking this approach is likely to be a much better strategy than trying to fight tightly integrated first-party services with inferior alternatives.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

16 thoughts on “Chase Pay and the Power of Smartphone Platforms”

  1. I am a Canadian, and have with some bemusement, mostly derision witnessed how our national banks are reluctant to go along with Apple Pay or Android Pay. The point which you touch on around “my personal user experience” seems to be lost on them regarding their place in my “mind space”.

    When I use Visa, I am not really thinking about the bank, I am mostly thinking about the credit card. So Apple Pay will not really change my perception of my bank appreciatively.

    My connection with the bank is far richer than any payment regime when I purchase something. They have my mortgage, they have my retirement investments, they have my chequing/savings accounts, they have my line of credit, etc. They have, and, unless they irritate me have a very rich relationship. So I say to my bank: “Lighten up already, how I evolve in my habits on how I want conduct my consumer transaction payment activities will not change how I view my realtionship with me”. In fact your resistance to Apple Pay gets me thinking about my relationship in an irritating and questioning way.

    I gather that Ammerican express will be introducing Apple Pay, I may just be tempted to use their credit card/Apple Pay scheme to buy groceries, clothing, and so on. Depending how my bank responds, I just may choose to move other aspects of my financial as well.

    Any company that makes strategic choices based on fear of change is already on the ropes as it were. The appropriate question to ask here is: “How can we make this new payment even more attractive to our current and new customers being and coming to us?”

    As a point of closure, I have communicated my perspectives above to my bank. The response I received was typical ambiguous PR speak.

    1. I think the issue is not quite as simple as whether to support Apple Pay or not.
      – Banks are loath to lose the customer relationship (and commissions) to intermediaries. They’re probably trying to get deals where they still get all transaction details
      – I’m unclear about the security setup. Is Apple, the bank, someone else on the hook for thefts and hacks ?
      – All solutions are equal from the end-user perspective: wave your phone, done. Whether it’s Apple Pay, Google Pay, Samsung Pay, Chase Pay, Visa Pay, Pe Pay doesn’t change anything, not the cost, not the process.. That’s creating hopes in a lot of players that they can be the app that’s launched when that phone-wave happens. Once things crystallize, that’ll be it though, like for credit cards.

      What I don’t really understand is why things are not being set up like for credit cards: an industry consortium in which all participants get a little bit of whatever they fleece from us. I’m guessing the IT firms are trying for a power grab, and financial actors resisting the best they can until they can finalize something to compete ?

      1. With ApplePay, banks are not losing the commissions to intermediaries. Apple does get a small piece of the bank’s slice but it’s quite small. The bank and card issuer get the same as for regular card usage.

        As far as liability is concerned, it appears that it’s essentially unchanged (except where the bank or card issuer can demonstrate some failure at Apple). There’s certainly no change that affects consumers.

  2. I assume VISA/MC resistance to Apple Pay, outside of the US and UK, is because of the resistance of the card-issuing banks, and that is what is driving Apple to partner with AMEX internationally.

    Altho there are many differences in the details, the big picture looks a lot like AT&T and the other US carriers (Verizon, Sprint, T-Mobile) back in 2007.

  3. The worst of the mobile payment systems is CurrentC. It was conceived to help the merchant and not the customer, and it’s probably failing.

  4. Jan

    I fully agree with your premise and comparison. It’s relevant.

    The thing is, it’s interesting that Chase hasn’t learned (especially in contrast to the announcement of Amazon Pay).

    I believe that banks need to figure out how to unbundle their services (create a platform), deliver those services where customers are (not create a new silo), and focus on “user experience” (which is often confused with UI — “look, pretty buttons!”).

    An example where we can see how this might work is Apple Pay. I have added cards from many issuers to my Apple Wallet, including Chase. The experience adding my Chase card was inferior to adding say my American Express or Citi cards (but better than Barclays).

    Why waste time building your own wallet and bastardizing the experience? The effort would be much better off being the “best adopter of Apple Pay”.

    david

  5. “Yet consumers have increasingly associated the positive elements of their smartphone experience with the smartphone vendors, while associating the negative elements with the carriers.”

    Not true for me. I am very, very happy with T-Mobile especially under Legere. They aren’t perfect but this is a company that always tries really hard to make the customer happy. Their customer service and customer service reps, including the overseas call centers, are exemplary.

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