Two weeks ago, at the Apple press event, the show went on, and each single announcement of new products or new features was supported by massive applause. Journalists covering the event were overwhelmingly positive about Apple’s new offerings. Apple did its Hollywood-like show, and demonstrated, with an unbelievable consistency, its amazing and unbeatable art of launching products.
Now that the curtain’s gone down, and the excitement has faded, what is Apple’s real move? What have they really offered consumers and what do these offerings mean for the future of the company?
3 new products & services were announced:
– iPhone 6: No surprises here. The next generation is a little bit more of whatever, and a little bit less of whatever, with a better software of whatever… No real innovation, no major differentiations.
– iWatch: Announcing a product half a year before launch can only be done when you are an expert in marketing and communication. As for the product itself, since it is fully dependent on the iPhone, it has limited contribution to your daily life. Your iWatch has basically no ability if it’s not directly connected to your mobile. As an example, if you plan to go for a run, you will need to wear your watch as well as your phone to get its full uses. Despite its great marketing and sleek design, usage will be restricted as long as it is phone-dependent. A smartwatch must be smart to be relevant.
– Apple Pay: This is the most important, innovative, and powerful move from Apple. It has the potential to be as disruptive to the e-payment market as the launch of the iPod was to the music industry, only on a much more massive scale. To understand, let’s share some views on the e-payment market.
o Traditional: Credit card payment is a traditional, conservative method of online payment. The slow evolution of this sector is hard to believe. The first credit card appears in 1950 (1); the first credit card with swipe was launched in the ‘70s; the first ATM was invented in 1967; and the first chip and pin came to be in 1992(2). No credit card or e-payment innovation has been successfully deployed in the last quarter of a century in the western world.
o Wealthy: In 2012, the estimated amount of non-cash payments, excluding wire transfers, was $79.0 trillion (3). With a fee representing 1 to 3% or the card organisations, the sector is wealthy and highly valued. As a reminder, Visa IPO was the biggest IPO ever in the history of the US (before Alibaba). Today shares are almost 5 times higher and its market capitalization is at $133B$.
o Major issue to solve: Fraud is a major issue and has reached such a level that it is no longer manageable. It is even more relevant in the US where chip and pin technology has a low penetration rate. Based on a recent article from The Economist (4), credit card fraud reached $11.3 billion in 2012, half of which occurred in the US. It continues to grow as credit card usage becomes more and more prevalent, especially with the current e-commerce market. The recent high-profile breaches in security at Home Depot and Target show that security issues around credit card are widespread. Interestingly enough, while France cut fraud by 80% through the integration of chip and pin, and UK have experienced similar declines in theft, the US is not heavily spreading this technology.
o Added value for the customer and the industry: For the end-user, the value was clearly presented during the Apple event: unique user experience, privacy, and security. For the bank the level of security Apple Pay offers is a unique opportunity. The fingerprint technology used by Apple will actually increase the level of security of e-payment.
o What’s in it for Apple? Based on the FT article (5), Apple will earn 0.15% of any transaction. If you assume Apple covers 5% of the payment in US (business and personal), revenue will represent $5.9 billion. With global revenue that should be close to $200 Bn this year, Apple Pay can be a decent contributor to the P&L. The ability to deploy it outside US can make a big difference in Apple financials.
The challenge will be in the ability to build a full eco-system, and persuading both sides of the transaction (retailers and card manufacturers) to participate. In the long run, it will be interesting to see if Apple can become the next Visa by accessing bank accounts directly. In Germany already, online payment is going straight to the bank account, shortcutting Visa and Matercard fees.
_ _ _ _ _