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Apple has announced that it is launching a payment terminal product, but how significant is this development? VIXIO spoke with payments industry experts to discuss the implications of the latest product diversification from the technology giant.
Later this year, U.S. merchants will be able to accept Apple Pay and other contactless payments simply by using iPhone and a partner-enabled iOS app, the bigtech giant confirmed on Tuesday (February 8), following weeks of speculation in the press.
This would enable Apple users, estimated to be around the 1bn mark worldwide, to accept payments with the simple tap of a card.
“As more and more consumers are tapping to pay with digital wallets and credit cards, Tap to Pay on iPhone will provide businesses with a secure, private, and easy way to accept contactless payments and unlock new checkout experiences using the power, security, and convenience of iPhone,” said Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet.
She continued: “In collaboration with payment platforms, app developers, and payment networks, we’re making it easier than ever for businesses of all sizes, from solopreneurs to large retailers, to seamlessly accept contactless payments and continue to grow their business.”
Tap to Pay on iPhone will work with contactless credit and debit cards from leading payment networks, including American Express, Discover, Mastercard, and Visa.
The company, which first released an iPhone product in 2007, is thought to have been working on the new feature since around 2020.
This was when it paid $100m for the acquisition of Canadian fintech Mobeewave.
Mobeewave, founded in 2011, created a system that allows consumers to tap a credit card or smartphone on another phone to process a payment using near-field communication.
“It feels as if they have waited to make this move,” said Bradford Kelly, managing director at Australian consultancy Payments Services. “So far, this type of work has all been done in an Android environment, and so Apple's entry into the market changes a lot of things.”
However, this largely depends on if the company opts to create a payments rail, which is highly unlikely, or just a terminal, he suggested.
Apple is already in payments, and now moving into the area of businesses, said Sam Boboev, head of product at StormPay. “They can easily target merchants with this, and it is reasonable to think that this move could be a success for the company."
Why now?
Apple’s choice to sit on the software that it acquired in 2020 has arguably resulted in it playing catch up to rivals Android and Samsung.
Apple’s move may simply be about its continuing battle for handset market share. If something can be done on an Android phone, as it can in this instance, then that is potentially a huge attraction for small businesses customers.
In the UK, for example, where iPhone represents around half of all smartphones, there are an estimated 5.6m businesses.
Around 5.3m businesses are classified micro, meaning fewer than ten employees, of which 4.2m are sole traders. Therefore, Apple is both defending its market dominance and missing a significant potential market opportunity for a low barrier-to-entry POS terminal. The stakes become even higher, if a competitor is already offering functionality that can better support these traders.
Globally, Apple has a significantly smaller market share, estimated at less than a third of global handset sales, so offering a simple POS solution could potentially help them become a more attractive option for would-be small business owners.
A game-changer?
Apple could have much wider ambitions.
Providers such as Square, which changed its name to Block at the end of 2021, have prospered and shown what is possible through their simple and easy to set up merchant solutions.
"Everyone is getting wrapped up in this story. It will give Square a scare, but will Apple become a merchant acquirer in its own right? Probably not,” Kelly said. “Whether or not they sell tech to banks is a possibility as well. This may mean that companies like Ingenico could end up being in the most trouble."
Ingenico is currently a leader in the payment terminals market, ahead of the likes of Verifone. The French payment terminal manufacturer was founded in 1980 and operates more than 30m terminals in 170 countries globally.
But it is the Square terminal that has arguably shaken the market up most in recent years.
According to Kelly, there was absolutely no style or finesse to payment terminals, prior to Square, which have created a more elegant solution for merchants. “But, this comes at a higher price and means higher fees.”
The plan to turn all iPhones into a card reader is a gamechanger, said Kane Jackson, chief executive of fintech Maslow.
Some 54 percent of the UK population now have a credit card reader in their pocket without having to pay $300 to buy a Square terminal, he continued. “While perhaps superficially, this appears to be a huge problem for Square and other country-specific payments companies, it more so validates the fact that the payments end-game was never going to be about hardware.”
Jackson argued that the battlefront of the war for payments will now move to the junction of software, service and value add provided by competing companies, which in turn are all charging similar fees because the race to the bottom has already been run. “I think we will now start to see the acceleration of payments companies bundling up additional features to win and maintain their customers.”
“Whichever company can lock its customers into the biggest and best product web will win, and that's certainly been one of Apple's most successful strategies to date,” he predicted.
Yet, others were not so sure. Axel Winter, founder of Singapore-based consultancy Pivot Digital, told VIXIO. “South East Asia is a hotbed for payment method diversification. There are hundreds of wallets and methods of paying,” he said, discussing his local region.
“There are already payment terminals that support what Apple wants to do, including from Android. So, Apple in this business? It is boring news, and the world isn't waiting,” he continued.
Apple devices are, on average, more expensive, leaving Winter sceptical that retailers will want to pay a premium for this. “As well as this, payments are a local game, and they differ from country to country, which often have different payment systems in place, like PromptPay in Thailand."
If they are doing this to create an ecosystem, then it could make some of their own products easier, but they need to localise, he said. “From a success rate basis, I don't think they are going to swamp the market, but never say never.”
For example, the likes of Google and Amazon have been unable to fully change things, and even if you look at platforms like Alipay, these are mainly used cross-Asia by Chinese travellers, while national payment methods stay the same, Winter summarised.
What will the regulators say?
Bigtech and antitrust has been a running theme in the US, Europe and Australia.
“There are already one billion iPhones in the world mostly in mature markets with heavy reliance on U.S. tech companies Visa and Mastercard so this could raise issues of competition,” speculated Kelly.
This will not add to or detract from the existing regulatory concerns, although it may further validate them, said Jackson. “Bigtech's influence is already here, and it isn't going anywhere. Whether it's Apple, Google or Square that handles the payments process the implications for society isn't materially different.”
Instead, Jackson argued, this move adds pressure on the incumbent providers of merchant services such as the banks. “But, Apple hasn't entered this space to compete with them.”
“Square has already proven that it isn't hard to push the banks out of the way in terms of better servicing customer needs and so Apple has come to compete with Square and that's the level they will aim to play at,” he said. “That isn't great for the banks, but it isn't new.”
