UBS On Apple Pay: Drinking The Merchant Kool-Aid

UBS recently published a report titled The Empire Strikes Back: Retailers and Banks to Join Forces as Alternative to Apple Pay in 2015. The report is so full of misguided misconceptions that, normally, I’d be inclined to think “Where did they come up with this stuff?” But in this case, I know where they came up with it.

The first sentence of the report told me all I needed to know about the report: “We again met with mobile payments expert Richard Crone.” At that point, I knew just what to expect.


Richard is a very bright guy. I first came across Richard more than 20 years ago when we were both working for KPMG and attended a training session in Houston. I doubt he remembers the session, let alone me. But I do. Richard struck out on his own, and has run a very successful consulting practice for years now.

I crossed paths with Richard again in May 2012 when we both presented at the same event. My presentation on “leveraging payments data” talked about the potential for merchant-funded offers. Richard pooh-poohed this idea, asserting that merchants don’t want “merchant-funded” anything. I guess the billions of dollars that merchants and retailers spend on mass media advertising doesn’t count as “merchant-funded.”

Richard also talked in his presentation about mobile apps, and told the audience that “he who enrolls, controls,”  admonishing merchants to get consumers to download and use their own mobile apps or risk losing the relationship.


So I knew from the first sentence of the UBS report that this was going to be a merchant-centric, bank-unfriendly report. Many of the assertions in the report don’t stand up to scrutiny:

1) “Challenges for Apple Pay; MCX may not be dead as many think.” I think the support for this assertion is the contention that Apple Pay lacks retailer support. I say “think” because there’s no explanation for why MCX will succeed if Apple Pay fails.  I’ve argued a number of times why MCX will fail: The economics of the consortium doesn’t make sense, consortia rarely make sense, and other reasons. Nothing in the UBS report addresses these contentions.

2) “It’s not about the payments but the data—self-marketing and offers is where the money is.” Wrong. As former Walmart CEO Lee Scott said in a room of bank CMOs, as far as Walmart is concerned, MCX is all about hurting Visa. The other participants may have other motivations, but there would be no need for MCX if not for interchange. If it were about the data, retailers and merchants could get the data from the networks and FIs more easily, cheaper, and more robustly than trying to do it on their own. So it is about the payments. And by “more robustly” I mean getting a bigger picture of consumers’ payments habits (i.e, across all merchants/retailers) which retailers can not get through their own mobile apps or via MCX, even if it were to succeed at some level.

3) “Mobile payments will be won at the point of sale.” Wrong again. Ironically, UBS should have picked up that this contention isn’t consistent with the previous point that “self-marketing and offers is where the money is.” It doesn’t really matter, actually–“mobile payments” isn’t something to be won or lost. It’s the “transaction” or “relationship” that’s won or lost. Who the hell cares how the freaking payment is made?

Well, there a number of reasons why someone would care: 1) There are different costs associated with different types of payments. But a mobile payment via Apple Pay is no more costly to a retailer (ignoring the cost of readers) than a card transaction today. 2) If the payment method enables some additional value to be provided to either the consumer or retailer.

Additional value–now we’re getting somewhere. The “additional value” for retailers is not the data. They can get that regardless of the payment method. The “additional value” of mobile payments is to consumers, who can get electronic receipts, and real-time insight into spending habits and account balances. Both retailers and banks are in a position to provide that kind of value. That’s what a “mobile wallet” should be offering (and not just a mechanism to make a payment).

The benefit to the retailer is stronger customer loyalty by providing a better customer experience, thanks to mobile payments. But the battle is hardly at “the point of sale.” The battle occurs primarily before the sale (through offers and through tools to help consumers make a smart choice) and after the sale (through receipt management and spend analysis).


In addition to the points I’ve argued in the previous section, I even take issue with the title of the UBS report. Retailers and banks are joining forces as an alternative to Apple Pay? Really?

There are plenty of reasons why banks and retailers should join forces. But the degree of support among banks (and credit unions) for Apple Pay is huge, and growing. Aligning themselves with Apple Pay is one of the best things to happen to banks in years.


What’s the point of this UBS report? Good question. At the end of the report, UBS concludes:

“We see limits to Apple’s ability to create large software and services revenue streams. [But] we think it too soon to exit Apple stock due to near-term earnings upside and a bullish view on Apple Watch.”

Huh? All that bashing of Apple Pay just to conclude that investors shouldn’t exit the stock because of all the other things going on at Apple?


Bottom line: UBS’ view on Apple Pay has a lot more BS in it than U. OK, maybe it isn’t BS, but many of the contentions aren’t well supported. I would encourage UBS to get a broader take on the payments market (i.e., not just the merchant perspective).

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