Apple Pay’s Critical Success Metric

There are two moments from the recent iPhone 6 announcement that have stuck with me.

The first is when Tim Cook is announcing Apple Pay and shows the video of how payments are done today. A woman opens her pocketbook, fumbles for a second or two to find her purse, pulls out her credit card, and hands it to the clerk. All told, about 8 or 9 seconds. Oh, the problems we first-world people have to endure!

Then TC shows the way payments will be made with the iPhone 6, by holding up the phone to a reader, and…click, the purchase is made. Tim squeals “It’s that easy!” and hundreds of drool-slobbering Apple fanboys erupt in cheers…as if there weren’t 18 companies that already have that technology in place.

I expect the CEO of a company making an announcement to present as if no one else in the world exists. But I also expect responsible journalists to react with a bit more objectivity.

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The second indelible moment is when Cook said (speaking of payments, of course):

“Apple doesn’t know what you bought, where you bought it, or how much you paid.”

Wow. I hate calling anybody a liar, but this really strains credibility. It would have been a bit more believable if he had said “Apple won’t do anything with the data regarding what you bought…..”

And, of course, the important ending clause of that sentence would have gone unspoken, which is “at this time.” Is it really conceivable that, at some point in time, Apple won’t look to monetize the data?

But for now–for Apple Pay 1.0–I’ll take Apple for its word that it won’t be using the payments data. That begs the question: Why not?
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A couple of reasons. First, at this stage, it’s more important to Apple to drive as much payment volume as possible. That would seem to be obvious, but doing something with the data might drive privacy concerns, which–especially on the heels of the iCloud hooha–Apple doesn’t want to raise.

The second reason is that I simply don’t think Apple has the data management infrastructure to do anything with the data. At this point, that is.

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We tend to think of the incremental numbering in technology versions as corresponding to new technical developments, but in the case of Apple Pay 2.0 and beyond, it might relate more to business model developments than to technical enhancements.

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At a recent credit union conference, in a discussion of what CUs could do to prepare for a day when Apple Pay included a broader range of FIs, one CMO asked: “Should we encourage our members to link our cards to iTunes now?”

That might appear to be a sensible strategy, but my answer was “maybe not.”

The primary reason for encouraging your members (or customers if you’re a bank) to enroll their cards on iTunes is if you feel threatened that they will switch their card use behavior as a result of Apple Pay. But if your FI has a well-designed (from a features, not artistic perspective) card, then encouraging members/customers to link their cards ahead of an Apple relationship is a risky proposition for you.

Here’s why: Apple may not be doing anything with the data regarding what people bought, where they bought it, or how much they paid…but it didn’t say it wasn’t going to do anything with the data about what kind, or how many, cards iTunes customers have.

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While driving payment volume is undoubtedly important to Apple Pay 1.0, a critical success metric for Apple is number of cards enrolled per customer.

If I hear one more joker trot out the statistic that Apple has 800 million customers’ cards on file, I’ll puke. Apple would be better off knowing the card relationships for 200 million customers than only having one card on file for 800 million people.

It will take some time for Apple Pay 1.0 mobile payment volume to ramp up. The large issuers who have partnered with Apple for version 1.0 (Amex, BofA, Chase, Capital One) aren’t going to sit back and do nothing waiting for the payments to trickle in. They’re going to continue to go after holders of competing cards to switch.

And how will they know whose cards people hold and reach those people? By working with Apple to mine the iTune data, and advertise to them.  Doing this in no way contradicts with what Cook said regarding Apple not using the payment data. For Apple Pay 1.0, the card data is more important than the payment data.

Apple might not know “what you bought, where you bought, or what you paid for it.” But it will know what card you used to pay for it. And if it also knows what other cards you could have used to pay for it, that puts Apple in a really powerful position.

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