As Apple and the other handset giants turn their attention to financial services through the launch of their various ‘Pay’ solutions, will banks face a similar fate to that of the music industry, which Apple revolutionized with the iPod and iTunes? Are their business models under the same threat that labels and music distributors faced in years gone by?
Apple has a track record of disrupting every single market it has entered. Apple Music, an all-encompassing proposition designed to deliver a superior customer experience and create an all-Apple music industry at the same time, is quickly rendering both the cost and the usability of competing services obsolete.
History has taught us that Apple isn’t fond of partnerships. Its products and services are designed with total customer exclusivity in mind. And while Apple panders to its customers, it can cruelly adjust its commercial relationships with the industry’s other stakeholders once it has achieved its aims.
In the payments world, the OEM (original equipment manufacturers) charm offensive is already in full flow and consumers are being seduced as a result. OEM Pay services, like Apple Pay, which put the user experience before almost everything else are finding their way into their customers’ hands, preloaded on beautiful and powerful devices. I can’t imagine you have ever loved a bank card in quite the same way. I know I haven’t.
But there’s a big picture for banks to see, because at the core of it all this really isn’t about payments. It’s about vying for customer attention, creating loyalty, collecting user profiling data and establishing control over the market. Let’s not forget that Apple’s customers are also the banks customers and, outside of financial services, consumer behaviour is adapting quickly to advances in device capability and the development of new converged mobile services. In this wider world, the OEMs are very strong indeed; for iPhone and iPad users, Apple has the entire ecosystem sewn up. The bold among us may even say that the OEMs are the architects of this behavioural evolution, which puts them in the perfect position to develop an optimal mobile payment experience.
For banks, it’s a confusing time. On the one hand, their customers already participate in the OEMs’ mobile world, so keeping pace by participating in OEM Pay solutions is a logical step, one which should, theoretically, increase their own customers’ loyalty. But each Pay comes at a price. Participation reduces their control over the payments process and forfeits entirely their interface with the customer. Despite this, they still retain many of the traditional responsibilities for consumer protection and privacy, for example. For this reason, over the past couple of years many banks have been hesitant to make their move.
Will Apple and the other OEMs succeed in their bid to make payments ‘boundless’ in the way that is now commonplace in music, but was almost inconceivable just fifteen years ago? It depends. The banks’ trump card here lies in consumer trust. Who else would consumers trust to receive their monthly salary, safeguard their savings and manage their money confidentially in a tightly regulated market? But as the OEM charm offensive continues, even this safe haven could be eroded because consumer attitudes are on the move again. The warm consumer glow emitted by an ultra-convenient end-user experience is mounting a challenge to the banks’ traditional ‘absolute’ values of confidentiality, trust and loyalty. Consumers have tasted this type of innovation-based disruption before, and are hungry for more.
To keep pace, banks need to consider their strategic options and act now to avoid suffering the same fate as the music industry. There’s little doubt decisions made today will have long-term implications for their overall future, and already there are several routes to market for them to evaluate.
Banks’ hesitancy is understandable (there’s a lot at stake and it is proving difficult to establish a traditional business case for entering the market), but those that continue to defer their decision, however, will ultimately have it made for them. Their reluctance to engage in this space has cleared the way for the OEMs to make their mark. It’s now time for banks to stop looking for short-term profitability and accept mobile payments as the cost of keeping them in the game.
At the heart of this debate lies a decision that, sooner or later, every bank will have to take: play the mobile payments game fully and retain a day-to-day interface with their customers, or, like the fate of the music labels that came before them, accept a future role as a behind-the-scenes player.