Overall Analysis: Apple Pay is the most important mobile payment system to be released to date.

  1. Customers of Apple iOS are the most likely to buy with their phones (67% purchase using their phones), they spend 2X as often as a typical smartphone owner and they purchase higher dollar amounts with their phones ($25 vs. $20 median purchase). Apple iOS control almost half the existing consumer smartphone market (45% vs. 47% for Android) in the U.S. This bodes well for Apple Pay and provides an incentive for merchants to adopt Apple Pay.
  2. Mobile Network Operators, like Verizon, AT&T, Sprint and T-Mobile were left out of the equation even though it is based on an NFC chip on the phone. They have been pushing to become an integral part of the mobile wallets ecosystem. Apple Pay treats them as dumb pipes.
  3. Payment Networks like Visa, MasterCard, American Express and Discover (as of Sept 10) are part of the new ecosystem. Apple is using the existing rails for transacting and also for certain new services. For example, they are providing a token service, so that card numbers are replaced by tokens, which make online and mobile payments more secure.
  4. Issuing Banks such as Bank of America, JPMorganChase and Citi are integrated into Apple Pay, but have to give away part of their normal interchange fees to Apple, according to a Bloomberg report. Apple Pay says it won’t charge users, merchants or developers for transactions…but no mention was made of issuers.
  5. Merchants are still a missing equation. No big merchant surprises were named on the Apple presentation. While about 220,000 stores already accept NFC, the vast majority of the roughly 8 million U.S. merchants (that accept cards) do not accept NFC. The 2015 deadline for EMV is looming and Apple Pay will provide more impetus to shift to dual interface terminals.
  6. Wallet needs to be about more than just a way to pay. Expect to see integration with loyalty programs that are built into Passbook, to give further impetus to both consumers and merchants to adopt. The “cool factor” of paying with your phone (and your Apple watch) just isn’t enough.
  7. Phones available with Apple Pay will be iPhone 6 and iPhone 6+ only, because Apple Pay requires a chip on the phone. That means only those customers that buy a new phone will have the technology at first.
  8. Data will not be collected by Apple. This poses less of a threat to the existing ecosystem since customer data is expected to provide higher value services and return over the near term future.
  9. Branding accrues to Apple. Apple Pay becomes the brand that consumers will think of when they purchase, similar to a PayPal experience today. While the consumer will have to indicate which account they are using to buy, the overriding wallet account is always Apple Pay. That puts Apple in the driver’s seat to accrue customer loyalty and grow their perceptions of security protection. Over time more power over the ecosystem will accrue to Apple. What Apple does now is not what Apple will do in the future. As players lose power, they will also lose income.
  10. Security will be paramount with the touch ID built into the payment system.Even more important, card data will be substituted for a token.

About Mary Monahan

Mary Monahan is Executive Vice President and Research Director of Mobile for Javelin Strategy & Research.

Mary brings 10 years of successful direct financial services industry experience to her clients.  Before joining Javelin, she was a Vice President at Wells Fargo Bank where she supervised a $650 million portfolio of commercial, consumer, and real estate loans; and co-directed lending for 35 retail branches, five business-lending centers and one real estate loan center. She specializes in the psychology of why people spend money and the implication for mobile initiatives.

Ms. Monahan’s prior experience includes:

  • Vice President, Commercial Banking Group, Wells Fargo Bank, Los Angeles County, CA.Marketed and managed tailored financing services to growth companies.
  • Assistant Vice President and Manager, Business Lending Center, Wells Fargo Bank, Southern CA. Tripled portfolio; penetrated new strategic asset area for bank.
  • Loan Supervisor, Retail Banking Group, Wells Fargo Bank, San Jose Region, CA. Co-supervised a $652 million portfolio of commercial, consumer, and real estate loans; Co-directed lending for 35 retail branches, five business-lending centers and one real estate loan center; Managed loan officer training and mentoring.

Ms. Monahan holds a B.A. in Economics/English from San Diego State University and an MBA, with a concentration in Finance, 2000, from the Graduate School of Management, University of California at Davis. Ms. Monahan was awarded the University of California Scholar’s Grant and the Faulkner Fund Grant. She resides in the San Francisco Bay Area.


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