Author(s): Raghu Gopal
Yesterday at its Worldwide Developers Conference in San Jose, California, Apple made a series of announcements in hardware, software and services (see Instant Insight: Apple Holds Cards Close at Worldwide Developers Conference 2017). Together with news of a smart speaker called HomePod and a platform for creating augmented reality apps, Apple announced a person-to-person payment feature for Apple Pay that will be integrated into iMessage.
Apple Pay, a mobile payment service launched in late 2014, has had moderate success even though 375 million users have access to the app. The service can be used at selected point-of-sale terminals in about 20 countries and will be accepted in 50 percent of US retailers by the end of 2017. However, thanks to a lack of peer-to-peer capabilities, Apple Pay has offered only marginal convenience, replacing one kind of swipe for another. The ability to transfer money to personal contacts has been a clear gap. By adding this feature, Apple is taking on third-party services such as Venmo, a mobile payment service owned by PayPal, and Square Cash, as well as services from banks such as Chase's QuickPay. The service will initially be available in the US and will make it considerably easier for iPhone users to transfer money to each other.
As part of its expansion into peer-to-peer payments, Apple also introduced Apple Pay Cash, a digital debit card that enables recipients to transfer the cash to a bank account or spend it on e-commerce sites and in physical retail stores. Apple is partnering with prepaid payment card company Green Dot on its Apple Pay Cash card.
Peer-to-peer payments have long been established in the Chinese market, mainly through Alibaba's Alipay service, which was launched in 2009, and WeChat Pay, the mobile wallet inside social messaging app WeChat, introduced in 2013. The scale of success is underlined by the 450 million monthly active users of Alipay, with a staggering 1 billion transactions being made in just 24 hours during Singles' Day in November 2016.
Despite Apple's later entry into this form of digital payments, its large presence in Western markets poses a major threat to established players. Furthermore, its new virtual debit card will introduce Apple Pay to more users, and it could appeal to many younger consumers who might not already have traditional credit cards. Apple is further weaving itself into people's everyday lives with this development.
The new feature will be rolled out later in 2017 as part of iOS 11, initially in the US, but we expect it to quickly follow in other leading markets for Apple such as Western Europe. Given the huge number of active iPhone users in affluent markets, this will be a gateway to a new generation of payment and personal finance services that could, over time, help reshape traditional consumer financial services.