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Strategic Analysis: Apple enters the mobile payment market with iPay


"In the next five years, this race will change marketing to end-customers more than it has been changed in the preceding 40 years" predicts Key Pousttchi.

According to various sources, Apple plans to introduce a comprehensive m-payment solution with the iPhone 6 and signed respective agreements with Mastercard, VISA and American Express. What is the background and what will be the impact? Five questions to Dr. Key Pousttchi, Head of wi-mobile Research Group at the University of Augsburg.

How will iPay look like?

Pousttchi: Apple will probably support both iBeacons (on Bluetooth basis) and NFC (Near Field Communication). Apple stores in the U.S. already use Bluetooth-only solutions. However, in stationary retail, Apple will not yet be able to bypass existing business processes of brick-and-mortar stores and their payment service providers. Thus, there will be an NFC transaction at the check-out: The customer touches the card terminal with his phone and then confirms the payment on his device, for instance by fingerprint.

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Where will Apple m-payments be accepted?

Pousttchi: In theory, anywhere you can already pay with Mastercard, VISA or American Express. In practice, you need to have a card terminal which is enabled for contactless transactions.

What changes for the merchant?

Pousttchi: At first glance, there is no change, it is a regular credit card transaction to him – the phone behaves just like a contactless credit card. As a result, the merchant neither controls whether his customers will be able to pay with the iPhone nor will he get more data than before. In the mid-term, Apple will offer according value-added services to retailers based on iBeacons. We hear the first names of U.S. retailers who might be involved.

Up to now, all m-payment services in Europe and North America failed. How are the prospects of Apple for a market breakthrough?

Pousttchi: As for usability, we might assume that Apple makes no mistakes, especially as they benefit from the situation of being the only player who controls the device, the operating system and the secure element at the same time and need no rotten compromises here. As for the value network, they just rely on the existing credit card ecosystem. Although iOS might have a lot less users than Android, these users represent a very interesting target group for many merchants. It is a niche solution, but a cross-sectional and smooth one – if no real blunders come up, the prospects are very good.

Why is Apple moving in this direction and what will be the impact to the market?

Pousttchi: Short-term, there will be no changes except maybe Apple earning some loose money from transaction fees and some fancy new services in the premises of one retailer or the other.

However, remember that the real game is about customer data – the currency of the future. Real-world payment data is the most interesting single source of information Apple and others do not yet have about its customers.
It all boils down to the race for extending their market power from the virtual to the real world. If you have enough cross-sectional customer data to analyze them with the new Big Data techniques, you can be the first point of contact for your customers for anything they need or want to know – even before they know that they need it. Then, you might serve as an intermediary between the customer and any kind of merchant or service provider.

In the next five years, this race will change marketing to end-customers more than it has been changed in the preceding 40 years. Apple fired the starter's gun, and Google, Facebook, eBay/PayPal and Amazon are ready to participate.

Dr. Key Pousttchi is an Associate Professor at the Business School, University of Augsburg. As an m-business pioneer, he founded the wi-mobile Research Group in 2001 and is active in research and practice of mobile financial services for more than 12 years now. Among other activities, he developed the Mobile Payment Reference Model and headed the National Roundtable of German Mobile Operators and Banks as well as the Canadian Roundtable and Think Tank on Mobile Payment and Banking. His new book "Megatrend Mobile – how smart phones will really change our world" will be published in 2015.

Press Contact:
Dr. Key Pousttchi
wi-mobile Research Group
University of Augsburg
86135 Augsburg, Germany
Phone +49 (177) 6319508

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Klaus P. Prem | idw - Informationsdienst Wissenschaft

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