Apple Pay, The New Payments Ecosystem and Bank Revenues

What should community and regional bankers think or do about Apple's announcement of its new initiative with Apple Pay?

Apple Pay is a NFC-based payment system that uses tokenization with plastic card payments to provide enhanced security and ease of payment with the iPhone.  It will only be available “in-store” on the new iphone, and it also can leverage mobile payments using the installed base of iTunes and Apple Pay.  It is a narrow effort in the new payments ecosystem which focuses only on an alternative at the front-end payment alternative to using a credit or debit card. Merchants and processors still do all the things they do now, and open issues remain on how things like charge-backs will be handled.  In some ways, Apple's narrow focus is wise, but it is a far less powerful strategy at present than PayPal for example, which addresses the entire mobile ecosystem with both merchant operations and consumer relationships and with 6 out of 10 households without requiring NFC for in-store payments. 

The upshot for bank checking and payment strategies is not to get mired in the latest new technology but understand the shifting economics of the payment ecosystem, and how to respond.  Apple Pay is one more offering in the booming new payments ecosystem that rests on the value of marrying information that previously could not be married.  Banks controlled the payment systems when checks were the primary payment vehicle and a discrete ecosystem, and earned revenue for processing transactions and providing accounts. Now when a retailer can use the internet and a mobile phone to marry location, purchase history, showrooming offers, comparison shopping, peer review and integrated checkout, the value of the information to the retailer or telecom provider vastly exceed value created by just a payment processor or account provider.  

As a result, bank accounts and payment methods become fungible and the value is stolen before it reaches the mundane settlement function of checking account.  All the news about Apple and mobile wallets attract attention and debate, but the far more important truth for bank checking accounts is understanding how the account is being dealt to the bottom of the pack by all sorts of payments players. 

How does the checking account fight back?  Four key steps define the way to remain at the top of the consumer's payment pack:   1) Use payments branding reflecting the new payments ecosystem, like PayPal rather that Premier checking  2) Focus on payment transaction features, not “account” features, as in no overdraft fees on the transaction like prepaid cards rather than account benefits,  3) Provide payment security of online and in-store shopping by providing added debit-only accounts that imitate prepaid cards to limit funds at risk, and 4) include automated liquidity choices like BillMeLater (now PayPal credit.)

Need an example of how this drives accounts, revenues and payment relevance for bank checking accounts?   Check out PaySound.^®