Chase Pay and the Power of Smartphone Platforms

on October 29, 2015

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.