New Kid on the block in Banking – Apple Pay!
Many believe Apple introduced the world to payments without cash or card. Long before Apple Pay came into being, Paypal, Google Wallet and few other channels were already being used. However, the adoption rate for Google Wallet and other similar options was dismal, with only a few enthusiasts using it. While Apple may not have the frontrunner advantage, it definitely is revolutionary, as Apple has claimed.
Apple already has most of the leading banks as partners, not to mention the three big credit card issuers. Operating in two regions, UK and US, it has an enviable list of participating banks, with Barclays and HSBC promising to support Apple Pay in the future. However, other companies are lining up to dethrone Apple from its newfound success, with the Korean competitor announcing Samsung Pay and MCX’s (Merchant Customer Exchange) CurentC ready to launch next month.
And here are Apple Pay partners, including the three big credit card issuers pic.twitter.com/DZadRrdQaS
— Eric Platt (@EricGPlatt) September 9, 2014
With Apple entering the untapped market, banks are facing increased competition in the sphere, threatening traditional banking in more ways than one. Banks can no longer ignore the onslaught of technology in banking but will they rise to the challenge? Will Apple, Google or Facebook be your next bank? Is this the end of cash and card payments? Is one touch mobile payment the future of transactions? Let’s find out.
What is Apple Pay?
Apple wants its users to get rid of their physical wallet, hoping to bring those functionalities to the phone. Apple Pay allows users to make payments, store boarding passes, tickets, coupons, and credit/debit card information. Users can then make purchases at the touch of a button, with the fingerprint scanner giving it the much needed security for such an operation.
Why is it revolutionary?
Data Security & Technology Edge
Apple Pay makes use of NFC (Near Field Communication) to make transaction (s) seamless. It also uses the tokenization technology, wherein a one-time code is generated for each transaction. Tokenization works by substituting a random string of characters for the actual card details. As Tim Cook said during the unveiling of the service, sensitive card details will not be stored on phone and the merchant cashier would not see a user’s name or card data, thereby securing data. The thumbprint biometric authentication adds another layer of security, giving it an edge over other traditional transactions. Also, in case of a breach, hackers will be confronted with useless scrambled data instead of actual card information.
According to AlixPartners Study, 63% of 18-25 year old’s surveyed are already using mobile payments, up from 56% just six months earlier. The key to get this target audience on board is a seamless user experience. The ease in the process means quick transactions and most importantly more data. The additional data will include user contact information, mobile location, merchant, data, purchase history, in addition to legacy credit transaction information. The key question is are banks ready for this Big Data? There needs to be well thought out and solid mechanism to collect, manage, visualize and monetize this information which will be coming in large volume, different variety and at high velocity.
What’s in it for banks/Financial Institutions?
The introduction of PayPal, Apple Pay, GoogleWallet, Android Pay, Samsung Pay and other competitors entering financial services domain have left banks in a fix. Most see this evolution and revolution as a threat to banks, but also realize that it could play an optimal role in the migration from plastic cards to mobile commerce. Some even think Apple Could Become Your Next Bank, but that is definitely not the case for now, without dismissing the possibility of it happening someday.
At the end of the day, banks and financial institutions are beginning to realize that technology is fast changing the way we bank. The verdict is clear, banks need to up their ante and embrace technology-driven-innovation as an ally. Apple Pay is but a stone, dropped in the financial water that is slowly generating a ripple effect. In the words of Phin Upham, principal at Thiel Capital, “Ten years from now, finance will be more like water. Turn on the tap and water comes out.”
Big Data technologies have enabled harnessing these technologies in an effectively. Hexanika prides itself for leveraging latest data management technologies to develop solutions and assists banks in first understanding how new technologies can be adopted. Please feel free to contact us.
Authors: Vedvrat Shikarpur & Yogesh Pandit
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