In recent weeks, we’ve seen several major financial institutions test the waters of blockchain technology. From foreign banks testing the new payment rails of Ripple to global lending giants exploring how distributed ledgers can streamline their processes and cut back on manual errors.
It’s becoming increasingly clear that the future of banking is being shaped by fintech players. Many are beginning to wonder if Apple has its sights set on becoming the next big fintech company as well.
The company announced its first major foray into banking at its software developers conference in June when it unveiled an app called Apple Pay.
This would make it easy for customers to use credit cards bought at retail outlets. To make this possible, Apple had built up a network of stores across the country and created a set of standards that all merchants needed to adopt for Apple Pay to work with them.
As such, this was effectively an extension of its iTunes Store, a cashless ecosystem where users could shop wherever they wanted and get paid directly through their bank account instead of having to wait for checks or money orders to arrive in the mail.
What Is Apple Pay?
Apple Pay is an extension of the digital wallet functionality built into iOS devices like iPhones. The app works with most major credit card networks and e-wallets including VISA, MasterCard, American Express, and Bank of America.
What makes Apple Pay unique is that it allows for near-instantaneous payments. Merchants will typically have a QR code linked to your bank account that you can show the cashier to pay for the merchandise.
If you’re using a credit card, you can scan the merchant’s unique QR code to authorize the payment and get a “completed” notification on your iPhone.
If you’re using an Apple Pay-enabled debit card, the app will automatically pull up the merchant’s Terms and Conditions and show you how much money you’re putting on that particular card.
Why Does Apple Care About Banking?
Apple Pay may seem like an odd choice for a company like Apple. After all, the app is only available on iPhones and iPad. So, why bother with a banking partner that’s only going to be used by half of its customers?
The answer lies in the fact that Apple Pay could be the company’s way in. With its network of over 100 million customers and the reach of the app, Apple Pay has the potential to be a one-stop-shop for payments across a wide range of channels including in-store purchases, online commerce, and even
Apple services like Airbnb and Uber. Funnily enough, this is something that existing digital wallets like Venmo and PayPal aren’t doing.
While Venmo is available on PayPal-connected online stores and for some in-app purchases, PayPal is mostly used for in-store purchases. You’re probably not going to log into Venmo and book your Uber ride from there.
Fintech Trend: Becoming A Digital Bank
Apple Pay has already set the wheels in motion for it to start processing payments like a traditional bank. Given that the app is already linked to hundreds of thousands of payment accounts, Apple already has a deep pool of customers for its instant money transfer service.
And with this, it could start offering financial products like checking, savings, and loans. It recently signed a deal with startup Fidor to offer banking services through Fidor Bank AG, which is operated by Apple Pay and is reportedly doing the same with ING.
This is something that other digital wallet providers like PayPal and Google are also trying to do with their banking partners.
The key, though, will be getting enough user traction to become a viable alternative to the current financial system.
What’s Holding Apple Back?
Apple Pay’s immediate success has a lot to do with the fact that the company has been building a cashless ecosystem for a while. But, as it turns out, that’s where Apple Pay’s success has been holding it back. Apple Pay is already available in the US, UK, and Australia.
But, for some reason, it’s not coming to Japan quite yet and Apple hasn’t given a clear explanation as to why. If Apple can’t get its banking partner in Japan to sign up a decent number of merchants
Hence, it won’t be able to offer a viable alternative to the traditional payment system. That, in turn, would keep Apple Pay from reaching the critical mass needed to become a cash alternative.
Here’s What To Watch For Going Forward
It’s important to note that while the potential of digital payment systems like Apple Pay is exciting, it’s important to not get ahead of ourselves here. After all, the current system is working just fine and international payment rails like SWIFT and PayPal are still the industry standard.
That said, if Apple Pay can continue to sign up a decent number of merchants, then it has a chance of becoming a digital bank if it can get enough traction. That’s going to take some time though. The key for Apple Pay to become a digital bank is for it to sign up enough merchants to become a viable alternative to the current financial system.
With that, users will be less likely to use cash and, as a result, push Apple Pay to become a more common payment method. And, if it can get enough traction in that regard, it could become a top contender in the digital banking race.
Finally, Just when you thought it was over, tech companies are still finding new ways to disrupt the banking sector especially when it comes to payments. The fact that major banks are now jumping on the blockchain bandwagon shows just how seriously the industry is taking new technologies.
It’s clear that the future of banking is being shaped by a wave of new technology companies and we’re likely to see more big disruptions in 2019 and beyond. Apple Pay is one of the next big players to watch.