Who is bigger and badder than the banks? Apple. The tech giant is slowly capturing the mobile payments market – but is it good for consumers?
You may have heard a low-frequency grinding noise emanating from the central business district recently. It’s the sort of noise produced when honeyed words are forced out through furiously clenched mandibles.
For the New Zealand and Australian bankers slowly wearing the enamel off their teeth, an Apple a day most certainly does not keep the dentist away. You wouldn’t know it from the press releases, of course. On the surface, the banks are super stoked to be introducing Apple Pay for their iPhone-wielding customers. BNZ became the second bank to offer the service in October, which they said was “hugely exciting”.
Beneath the scripted niceties, there’s a power struggle underway that would make a good season of Game of Thrones. It involves conspiracy theories, companies put to sleep, unholy alliances, and of course, millions and millions of dollars. There might even be a dragon. This is the little-known story of how Apple gave our banking industry a spanking.
To set the scene: Overseas folks don’t just think of New Zealand as a pleasant little backwater to escape to when the apocalypse comes. We also have the dubious honour of being a petri dish for the financial services industry. Banks and fintech companies like to experiment with zany new technologies down under, because we’re a small, isolated market. If something goes wrong, well, it’s only going to affect a few sheep and a couple of blokes named Trevor. The revenues gained or lost might as well be a rounding error.
And so it was with contactless payments. New Zealanders were among the fastest in the world to get on board with tap-and-go bank cards, but that was only phase one. The much-hyped goal was to install a digital wallet on every phone, and do away with clumsy cards altogether. At first we had various hacky solutions – including a card basically glued to the back of a phone, possibly inspired by New Zealand’s third most popular parody folk duo.
At the same time, a much more ambitious Frankenstein’s monster was carefully being stitched together. It was called Semble, and it was going to be a one-stop digital shop for mobile payments, loyalty schemes, coupons, transport cards – you name it. Unlike in overseas markets, where everyone was fighting tooth and nail, Semble had somehow managed to get all three major telcos, the formerly bank-owned Paymark, and a couple of banks all working together towards a common goal. By the time this strange creation finally lurched into life, the whole world was watching.
And then… nothing happened. User numbers were never made public, but the download estimates on the Play Store were feeble. Towards the end of 2016, this exemplar of Kiwi can-do and co-operative spirit was quietly put to sleep. There was no kicking and screaming, or pitchfork-wielding mob at the gates. After years of hype, the untimely demise barely made the headlines.
What went wrong? Perhaps it was Semble requiring a special SIM card for the “secure element” that makes mobile payments possible, while competitors either store it on the phone itself, or use software to emulate it. Perhaps it was the fact the alliance was already showing signs of cracking – both Westpac and ANZ pulled out of the launch, and released their own wallets instead.
And perhaps it was Apple. New Zealanders really, really like their iPhones. iOS has something like half the mobile market share here, but Semble was only available on selected Android phones. At the time of the launch, CEO Rob Ellis was optimistic Apple might come to the table. In retrospect, it’s hard to say if this was naiveté or he just had to pretend to be optimistic in public.
Because this isn’t how Apple does anything, ever. It doesn’t play nicely with others. It doesn’t make the first move. It sits and bides its time, and then it does things its own way, and bends everyone else to its will. To extend the petri dish analogy, it makes no difference if native colonies of bacteria are already well established. All it takes is one bigger badder bacterium, and all other lifeforms are suffocated by an exponentially multiplying carpet of mould.
Apple finally included near field communications (NFC) mobile payments technology on the iPhone 6, and launched Apple Pay a month later. True to form, there was no collaboration. Unlike Android phones, the NFC feature was closed off to third parties. The banks would have to pay a juicy commission – something along the lines of 0.15% of each transaction, depending on the market – for the privilege of allowing Apple to insert itself between them and their customers.
Understandably, they were not thrilled about this. The big Australian banks – which own our ASB, ANZ, BNZ and Westpac – are often accused of behaving like a cartel. This time, they just came right out and owned it, asking regulators for permission to form an alliance (apart from ANZ) so they could bargain with Apple as one unified force.
The application turned into a surprisingly heated dust-up. Apple accused the banks of planning to charge customers more to deliberately put them off using Apple Pay, and said they were trying to free-ride on the investments it had made. The banks fired back, claiming Apple was spreading “conspiracy theories” that were nothing more than “fantasy”.
After much name-calling and pulling of hair, the banks lost the fight. The Australian competition watchdog’s reasoning was that opening access to the NFC technology would probably improve competition, but that would be outweighed by the reduced or distorted competition in granting such an unholy alliance. Undeterred, the banks continued to refuse to let Apple Pay play with them. They recently launched their own service, BEEM, and Westpac Australia has a cute wearable wrist-strap thing, neither of which are likely to be causing Tim Cook to lose any sleep.
Things are a bit different in New Zealand. For one thing, ANZ, which happens to be our biggest bank, didn’t take part in the battle. Perhaps seeing the writing on the wall, it cut a deal with Apple in 2016. The BNZ followed suit in October last year, in an intriguing display of autonomy from its parent company. Both ASB and Westpac are going down the wearables path, no doubt hoping iPhone users will be satisfied with payments using Fitbits or other gadgets. However, Westpac told The Spinoff it was “not discounting the idea” of Apple Pay, and was still open to negotiation. ASB says it “continues to monitor market developments”, and “remains open to working with other technology companies”. Kiwibank is ramping up its investigation into services like Apple Pay, but it says “still a bit too early to start definitively promising things”.
The banks that continue to hold out are playing a delicate game of chicken. If iPhone wielders (who tend to be valuable customers) become so desperate to use Apple Pay that they start switching to ANZ or BNZ, the others will have little choice but to bend the knee. Hardly anyone cares that much right now, but that might change if the Apple wallet starts to get better functionality and critical uptake.
The cult-like hipster adoration Apple has cultivated often obscures the fact it’s the biggest corporation in the world. The Australian banks are also behemoths, collectively worth several hundred billion dollars. For the average woman on the street, does it really matter which of these 800 pound gorillas happens to beat the other into submission?
The pricing works out the same in either scenario, because Apple refuses to let banks pass on extra costs to the consumer. Contactless payment systems (like payWave) do cost more for merchants to accept than regular Eftpos, which is inevitably going to be reflected in the price of your pie and coke combo, but that’s not a whole lot different to the status quo of using your tap-and-go card.
But there’s a bit more to it than pricing alone. When Apple Pay was released, Tim Cook played a ridiculous video of a woman struggling to use a regular credit card – fumbling around in her purse, being asked to show ID – reminiscent of a late-night infomercial for a weirdly-specific gadget you never knew you needed.
In reality, of course, it takes about three milliseconds to get a card out of your wallet. Sure, mobile payments are convenient if you don’t have your wallet, and arguably more secure, but don’t be fooled into thinking there’s some noble altruistic desire to save people from the crippling burden of having to carry around a tiny square of plastic.
Apple doesn’t even make that much money from clipping the ticket on Apple Pay, relative to its other revenues. It’s always been a hardware company, so the obvious motive is to continue encouraging people to line up around the block to buy stupidly expensive phones.
The less obvious motive involves your personal information.
Apple have been at great pains to claim that they don’t collect your data. Even to the extent they weasel their way around this – and there are ways – they wouldn’t be stupid enough to sell it directly on to advertisers. Nevertheless, it’s incredibly valuable to be snuggled up as closely as possible to the consumer. If Apple Pay gets a critical mass of users, they’ll have the muscle to bully merchants and retailers into moving their loyalty and coupon services into the Apple Wallet, deliver personalised shopping “offers”, and introduce peer-to-peer payments – all for a modest fee, of course.
This is the stuff of nightmares for the banking industry, where customer relationships are everything. In the worst-case scenario, the banks are relegated to “dumb pipes” that do little more than provide the financial plumbing on the back end. Considering that’s exactly what Apple did to the mobile carriers in the US, this isn’t just paranoia.
And so, the question of which combatant you should be rooting for essentially boils down to who you think is less evil. Is it the biggest company in the world, dogged by allegations of human rights abuse and certainly guilty of general chicanery? Or is it the consortium of powerful foreign-owned banks currently ruling over these fair isles? It’s not quite a Sophie’s choice, but it’s not far off.
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