Apple Inc. and its CEO Tim Cook made a splash this year when announcing Apple Pay at one of its well-watched keynote events that also debuted the iPhone 6 and the Apple Watch.
While Apple certainly isn’t the first to release a mobile wallet, the fact that it is now offering one is a threshold moment for mobile payments in North America. Because of the popularity of Apple’s products in both the U.S. and Canada, technology trends tend to get a kick up from early adopter stage into the mainstream when Apple gets on the bandwagon. Just take a look at tablet adoption after the iPad was released – Apple didn’t invent the tablet, yet it is credited with created this product category because the iPad was such a big seller.
Apple Pay is already available to Americans that have an iPhone 6 or iPhone 6 Plus. Since previous iPhones didn’t include a near field communications (NFC) chip, those devices aren’t compatible with the service. Apple Watch, anticipated for release in January, will also support Apple Pay. But that is still a fairly narrow subset of devices to use the service with. While a big segment of U.S. smartphone users have an iPhone, a pretty small segment has the newest model of the iPhone. It’s also hard to know how many will want to buy the Apple Watch, but you can bet that will also be a small segment of iPhone users. Overall, it’s going to take two or three years until there’s a critical mass of Apple Pay-compatible devices in the pockets of Americans.
Aside from making mobile payments cool, Apple has also done some impressive legwork integrating itself into the U.S. financial transaction framework. It has partnerships with several major banks and many major retailers will accept it. Clearly that ubiquity will go a long way to actually make Apple Pay useful.
It’s also what is lacking from the Canadian landscape. While Canada has good deployment of the same tap-to-pay POS systems needed for Apple Pay, Apple doesn’t have the same institutional partnerships here yet. In fact there’s good reason to expect that it won’t be able to arrange the same sort of deal that makes its scheme possible in the U.S.
Apple Pay is free for consumers to use – there’s no extra amount to pay on top of your purchase. It’s also comparable from a merchant standpoint to a credit card or a debit card transaction in terms of cost. So where is Apple making its money? From the banks. It’s squeezing a small margin out of the processing fee for each transaction on its platforms, likely thanks to a negotiated lower transactional fee rates.
In Canada, there’s no clear incentive for banks to negotiate a similar deal with Apple. In fact, many are pushing their own mobile apps that include the same functionality possible on Apple Pay, but with an Android or BlackBerry smartphone. Banks may prefer to try and own the mobile wallet rather than hand it over to Apple.
From Apple’s standpoint, negotiating international expansion of its digital wallet will likely come only after its proven profitable in the U.S. It will take time to establish the product there, and even after that there may be larger and more appealing markets to focus on aside from Canada.
So in 2015, don’t throw out your old bill fold just because you unwrapped a new iPhone 6 for Christmas. Just because Santa arrived, doesn’t mean Apple Pay will do the same.
