Jeff Glines’ Post

Transcript

When you pay for your morning coffee, do you reach for this or this? This is still what most people prefer, but digital wallets like Apple Pay, Google Pay and PayPal have become more popular over the last several years, especially for online payments. And that's making the banks whose cards are in your physical wallet worried, as Chase CEO Jamie Dimon said about the growth of new financial technology in 2021. It's about that, and Apple is one of big banks biggest threats. Here's how the tech company is encroaching on traditional finances territory and how banks are gearing up to fight back. We've created. An entirely new payment process. And we call it Apple Pay. When Apple Pay was introduced in 2014, it wasn't the first digital wallet, but it had a big advantage over its competitors, the iPhone. And now Apple Pay is activated on 78% of iPhones in the US. If you want to use an iPhone in store, it's very difficult to use a different wallet when you tap and pay at the register than Apple Pay. It was also the only digital wallet that banks agreed to pay a fee for every transaction. Here's why. Banks make money on debit and credit card purchases from interchange fees, which merchants pay to the bank that issued your card when you shop with it. Those fees are usually 1 to 3% of your purchase when you shop with a credit card. So if you buy that coffee for $5. And your credit card has a roughly 2% interchange fee. The bank gets about $0.10. But if you use Apple Pay, the bank has to pay 3/4 of a cent to Apple. Rather than pocketing $0. 10 on the $5 transaction, the bank would instead keep just over 9 cents on one small transaction. That doesn't seem like much, but it adds up. Apple took in an estimated $782 million from Apple Pay last year. Initially it was like, well, you know. Better to be on board with this and have our cards use an Apple Pay them be cut out completely. Because if you know we don't play ball, what could happen? Could Apple develop some other mechanism that cuts out cards? These Apple collects from Apple Pay only make up about 1% of the company's revenue from services. That includes things like the App Store, Apple Music, and I Cloud. But that number is growing. It's estimated that the amount Apple Pay collected nearly doubled between 2020 and 2022. But it's not just money. That banks are losing to Apple. It's name recognition. It's not good enough for the banks to be the underlying card that's used on one of these third party wallets. They're concern is that once you lose that entire experience is just a slippery slope from there, where eventually you'll have a tech company that is actually the lender and they don't need you behind the scenes. And Apple Pay isn't the end of Apples ambitions with consumer payments. But we want to take the Apple Pay experience even further. In 2019, it partnered with Goldman Sachs to create the Apple Card, and in March it began rolling out its own Buy Now Pay Later program. Apples subsidiary Apple Financing LLC will be the lender, effectively taking over the role that many banks and other financial institutions would usually take. And now that consumers are getting. Used to engaging with Apple for their payments, it doesn't seem so far fetched right that consumers would be interested in engaging with Apple and a deposit account or some other type of payment mechanism. An Apple spokeswoman declined to comment, but banks have also introduced their own new tech. In the last few years, many have rolled out tap to pay cards with similar technology to your phone that makes it just as easy to check out in store. Now they're preparing to compete with Apple in online payments too, with a digital wallet of their own called Pays. This is a very clear cut example where the banks have kind of had enough and are trying to figure out a very specific way to compete against. Apple Pay and PayPal. The new wallet will be operated by a company owned by these seven major banks. Pays will allow customers to access eligible debit and credit cards by entering an e-mail, potentially speeding up the online checkout process. Still, the banks will only succeed if people actually use it and merchants agree to accept it. After all, this isn't the first time banks have tried to launch their own digital wallets. Chase shut down its app, Chase Pay, in 2021, in part because of limitations. The iPhone, according to people familiar with the matter, talk about consumer behavior and shifting that behavior. Right now, people are very used to paying with Apple Pay, with PayPal. There's been tons of wallets that have launched in different forums over the years, and they failed. They failed to gain traction. As banks try to compete with their own digital wallet, tech companies are trying to create apps for more than just payments. What is certain is that the battle between the banks and tech companies will continue, period. Until a winner emerges, everybody is convinced that there will eventually be a small number of super apps that control consumer payments and financial services. So now they're basically duking it out to figure out who it's going.