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Apple Pay person-to-person or how to tighten the screws on a faltering banking business

As is often the case with Apple, they have not been the first. Person-to-person payments in iOS already exist, in fact we tried some time ago an app that sent money through Siri and another one along different continents and currencies. PayPal also launched its own system for payments between users of the platform a couple of years ago.

And yet, when iOS 11 introduces Apple Pay user-to-user payments this fall the scenario will change. Forever. Bad news for banks. Why?

iOS is not the same as Android

Apple Pay person-to-person or how to tighten the screws on a faltering banking business
Apple Pay person-to-person or how to tighten the screws on a faltering banking business

This is one of those phrases that remain engraved in the memory. Senator Gaius says it to Maximus, the Roman general who is the protagonist of Gladiator. A clear reference to the fact that with his reputation in the army and enough soldiers, a general could impose his will on the Roman Senate. And it is not just any soldiers: they have been fighting for years in the German campaigns to the north of the Empire. Accumulated experience that multiplies the value of each man.

Something like this happens with iOS when compared to Android.

Android N totals 9.5% of its installed base versus 86% for iOS 10

It was not by chance that at a developers’ conference, Apple executives made a poisonous mention of “other platforms”. Android was never mentioned by word , but it did appear on a slide comparing the installed base of iOS with that of Android according to its latest available operating system version:

  • 86% of users are on the latest version of iOS (iOS 10), launched in September 2016.
  • 7% of Android users are on the latest version (Android Nougat), launched in August 2016. Although according to the latest numbers presented on the same day as the keynote, this version adds up to 9.5%.

At a month’s disadvantage, iOS has ended up in the vast majority of users while Android N is barely a tenth. This is relevant for developers , since they know they have a huge market of users to attract to their apps with the latest tools and improvements. A percentage that translates into around 600 million iPads and iPhones (a conservative estimate considering that Apple claimed to have 1 billion active computers in total in January 2016).

What does this have to do with banks and Apple Pay?

Hitting the bank iron while it is still hot

The banking business is emerging from one of its worst global crises. In Spain, I experienced very closely the reconversion and merger of the sector after the closure of the Spanish public bank because of its excesses. A transformation that would affect the rest of the entities for one reason or another that we are not going to debate. The truth is that, at least in Spain, they are not going through their best moment.

If we add to this the fact that the digital transformation is also affecting a sector that was considered immune, we have all the ingredients for someone from the outside to introduce a little bit of chaos into the market. A window of opportunity has opened that Apple has wanted to take advantage of with Apple Pay. Introduced almost three years ago, it didn’t make its arrival in Spain until the end of last year.

The banks have not stood still, as almost all of them have their own solution for paying by cell phone. In the case of the iPhone, this system is far from the comfort that Apple Pay brings as standard on the iPhone and Apple Watch from the 2014 generation onwards. “Standard” is a much more important phrase than it seems, because it means that the user does not need to install any third party apps, in addition to accessing the system from the lock screen or the Apple Watch.

Apple Maps demonstrated that a good enough solution that comes standard defeats a superior one but from a third party

It is the power of “default” apps and services, which are available to the user automatically and without the need for an expensive marketing campaign. An example of this is the change that Google Maps underwent : from being installed as standard to being one more in the App Store. We now know that Apple Maps triples the number of users over Google Maps, regardless of whether one is better than the other or which is good enough for the average user. A fact to keep in mind.

Now that Apple has several financial institutions among its Apple Pay partners and the technology and software are deployed, it was time to give it another shot at the anvil . This is where Apple Pay comes in person to person.

This is Apple Pay person to person

Perhaps one of the most overlooked but important improvements of iOS 11. Apple dedicated just 83 seconds of a keynote that exceeded two and a quarter hours to a very interesting new feature for users.

Apple Pay’s presence throughout the world in early 2017.

An Apple Pay user with iOS 11 can send money from iMessage to another user anytime. That balance will be subtracted from the current account associated with Apple Pay and will go into a virtual balance of the other party. The other party will have it at their disposal to do three things:

  • Send payments with Apple Pay to another person.
  • Pay for purchases with Apple Pay.
  • Transfer the funds to your bank account.

We do not know the exact details nor if there will be any commission from Apple, which we hope does not exist for person-to-person (or peer-to-peer , P2P) payments. At first, it will be difficult to find users with whom can exchange funds . But over time, it will become easier because more users will have this system at their disposal via software updates, device renewals or the addition of an associated bank.

In countries like the US, where the iPhone’s market share is huge, Apple Pay person-to-person makes a lot of sense. In Spain, it becomes more complicated, although this really depends on the total installed base and its quality . It matters more the total number of users that can make use of it, since the longevity of Apple devices is higher than average.

Banks are going to become a “dumb pipeline”, the biggest danger for a service provider
Estas son todas las novedades de la WWDC17.

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And where are the banks in this scheme? Under Apple Pay. They would be turning into a dumb-pipe , a dumb-pipe that the Americans say. A simple service provider that neither clicks nor cuts in these transactions. The same happens with a telephone operator, which now struggles to incorporate additional services to attract and retain customers. The banking industry has it very tough with the millennial generation .

The iPhone is a black hole that swallows more and more services, devices and uses in its abyss. It will be interesting to see how this story evolves.

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