Everyone is talking about whether or not Apple Pay will or will not succeed. I know I’m jumping the gun on this, but I think Apple Pay has already passed the tipping point. Although it will take some time yet, I feel confident Apple Pay is going to be a viable payment solution. ((If you’re not as confident as I am, you can read some excellent discussions of the pros and cons, the ups and downs, of Apple Pay, in the following articles:
In my opinion, one of the best sources for analysis of Apple Pay is the rambling discussion between James … and Ben Thompson that took place on the Exponent Podcast, Episode 023: Apple Pay. Long, but vey much worth the time.))
Since I’m already comfortable with the idea that Apple Pay will succeed, I now turn my attention to the implications of that success. In the long run, how will Apple Pay affect the payment category? I think we may be able to use the recent past to help shed some light upon that murky future.
The further back I look, the further forward I can see. ~ Anonymous
The Year 2000
Rewind the clock to the year 2000 — before the iPod and iTunes had made their entrance upon the tech stage — and let’s follow the typical CUSTOMER as they make a typical purchase of music.
The CUSTOMER decides they want to buy some music. They drive or walk to…
…the local MUSIC STORE. They walk up and down the aisles perusing the rows of…
…Records, Cassette Tapes or CDs, looking through the various…
…ALBUMS. They select one or more albums, buy it, take it home and play it on their…
…Record player, tape deck or CD player.
The Year 2010
Wind It Forward
Wind the clock forward to the year 2010. How did the typical CUSTOMER buy music then?
In the year 2010, the CUSTOMER picks up their smartphone, selects a song — not an ALBUM — buys it, downloads it, and plays it almost instantaneously on a single, mobile device.
The CUSTOMER has benefited because they buy less unwanted music in the form of ALBUMS, buy it without having to travel, buy it without being inconvenienced, and listen to it without having to purchase or co-ordinate their purchase with a separate MUSIC PLAYING device.
My online dictionary defines disintermediation as:
In economics, disintermediation is the removal of intermediaries in a supply chain, or “cutting out the middlemen.”
Business theory often refers to the participants in a supply chain as being part of a “stack.” In our music buying story, there were numerous participants in the “stack” who were necessary in 2000 but were unnecessary in 2010. The MUSIC STORE is gone. PHYSICAL MEDIA is gone. ALBUMS are all but gone. Stand alone MUSIC PLAYERS are niche. They were all disintermediated — removed from the stack — by the introduction of the iPod/iTunes combo.
The Year 2013
We’re finally ready to return to the subject at hand — Apple Pay. It’s the year 2013, before Apple Pay has made its entrance upon the tech stage. Let’s follow the typical CUSTOMER as they make a typical retail purchase.
The CUSTOMER decides they want to buy something. They drive or walk to…
…the local RETAILER. They walk up and down the aisles perusing the rows of merchandise. They go to the…
…CASHIER in order to pay. They pull out their…
…magnetic striped CREDIT CARD which, in the United States, they got from…
Credit Card Provider
…a CREDIT CARD PROVIDER like Visa, MasterCard or American Express. Those credit cards are directly hooked to their…
…BANK. The CUSTOMER then swipes that card in a….
…credit card READER and walk out of the retailer with their purchase.
The Year 2023
Wind It Forward
Wind the clock forward to the year 2023. How will the typical CUSTOMER make a retail purchase then?
In the year 2023, the CUSTOMER travels to their RETAIL STORE, selects one or more items to purchase, proceeds to the checkout, waves their wrist wearable device before a READER, confirms the purchase and goes on their merry way. They may even make their purchases item by item as they select them and then stroll out of the store at their convenience without even having to stop at a register.
The CUSTOMER benefits because they make their purchases faster, with less waiting in lines; because they no longer carry physical CREDIT CARDS that can be stolen; because they no longer expose their CREDIT CARD numbers to the employees of the retailers, and because they no longer share their personal information with the Retailer, the BANKS or the CREDIT CARD PROVIDERS.
In 2023, the CREDIT CARD is gone, the READERS have all been replaced, and there are far fewer CASHIERS with far more self-help checkout kiosks.
Another interesting thing has happened too. In music, some parts of the “stack” — such as the MUSIC LABELS — survived the iPod/iTunes revolution, but they were no longer the face of music. In payments, Apple Pay and other competing payment systems will stand between CUSTOMERS and the CREDIT CARD PROVIDERS and the BANKS. When people buy, they will think APPLE PAY, not Visa, MasterCard, etc. and they especially won’t think of their BANKS.
The MUSIC LABELS did not disappear after the introduction of iPod and the CREDIT CARD PROVIDERS the BANKS will not disappear after the introduction of APPLE PAY either. However, they will have been marginalized and that may have severe consequences.
It is the role of BANKS that most interests me. Many people have a relationship with their BANK because they go into a physical building and interact with a teller. More and more, the need to actually visit one’s BANK is disappearing. Payment systems, such as Apple Pay, sit atop the BANK and further obscure the BANK from the CUSTOMER’s view.
Here is the key. Today BANKS are very “sticky.” People are unlikely to change BANKS because they have a relationship with their BANKS and because it is a pain in the neck to make a switch with very little to be gained. But what happens when one doesn’t have a relationship with their BANK, when every BANK looks like another, when every BANK provides virtually the same services, when it’s easy to make a switch and when the benefits of switching are made clear?
With APPLE PAY, and competing payment services, the BANK becomes just an interchangeable block in the stack. When Apple — the company you know and love — comes to you, suggests you transfer your funds from your bank to another bank, makes the changeover easy, and clearly defines the benefits of making that change…are you going to say no?
It is said that the present is pregnant with the future. ~ Voltaire
The iPod/iTunes combo changed the music business forever. It disintermediated several players and marginalized the roles of others. If Apple Pay succeeds, I believe the same will happen in payments. Some parts of the payment system will disappear forever and other parts will be obscured, then marginalized, then commoditized and, ultimately, subject to easy substitution and replacement.