Why Apple Will Take Over Payments, Part II

  • JJ Hornblass
  • March 10, 2016
  • 2
Apple's U.S. Patent Application US20150348002

Apple’s U.S. Patent Application US20150348002

Apple launched Apple Pay on Sept. 9, 2014. It became available on Oct. 20 of that year.

As the two-year mark approaches for Apple Pay, the contracts written with financial institutions back then will start to expire. And with it the 15 basis points Apple gets for including the banks’ cards in their Apple Pay service.

Lament, you might, for Apple’s loss of revenue. (Apple doesn’t break out its Pay revenue in its earnings reports.) It is also the case that since Apple Pay’s launch, Visa and MasterCard have expanded the ability for FIs to circumvent these fees, payments observers say.

But AZ Payments, a consultancy, argues that Apple is — or at least will be — anything but sad over this turn of events.

AZ points to a patent application Apple filed back in September 2014. The patent application has Apple providing payments services essentially throughout the iOS experience. Here’s how AZ explains it:

Keep in mind that Apple Pay is not an app; rather, it is part of the operating system. The [patent sketches] do not demonstrate that Apple intends to launch a P2P payment service through its messaging app; rather, they demonstrate that Apple intends to deploy payments solutions across the entire platform, within every single app. By deploying payments to third-party apps, Apple can monetize consumer experiences created by third-party content providers. By deploying payments within Apple products, it can monetize the consumer and merchant utility provided by the device.

Android Pay, interestingly, is an app. AZ further explains the patent application as “a geolocation-based search with a variety of merchants in range of the consumer.” Here’s how it would work:

One of those merchants is pushing a specific product to the consumer, and the consumer has the opportunity to order and purchase that product with one tap. At the same time, Apple encourages the consumer to download the merchant’s app, also with a single tap….  Apple spells out the approach to making this all work. The process involves matching the consumer’s payment history with other contextual information such as geolocation and with merchant suggestions and offers, resulting in a highly contextual offer to the consumer, with Apple Pay providing an immediate purchase and monetization option.

AZ maintains that Apple “doesn’t give a rip” about the FI fees that will evaporate. Rather, AZ sees Apple generating far more payment revenue beyond the POS. Or, to put it another way, Apple Pay is just a wrinkle of Apple’s newfound opportunity to own a massive pipe of iOS payments.

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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at hornblass@gmail.com or 212-564-8972.

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2 thoughts on “Why Apple Will Take Over Payments, Part II

  1. Very perceptive article.

    I have argued elsewhere , e.g. at :


    that :
    a) Apple needs “big hits”
    b) Apple has most of the pieces of the jigsaw needed to become:

    1) a bank
    2) a credit card provider
    3) a provider of payment solutions to merchants

    Apple is using Visa and Mastercard “payment rails” in exactly the same way as Amazon is using UPS/DHL “delivery rails” – as stepping stones to the solution that will destroy those “rails”.

    To summarise:

    a) Visa/MC have not been innovative
    b) the payments scene from a merchant’s point of view is a bag of hurt – over complicated, opaque, ripe for disruption

    Apple have all the pieces of the jigsaw:
    users, smartphones in users’ hands, premium users, user trust, ux competence, the bank balance, the need for better returns on $200bn of cash, iPads breeding like rabbits in merchant….

    Compared to building cars, payments is a walk in the park for Apple and just as big a market.

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