As ever, Apple’s product launches are greatly anticipated and 9th September was no exception. At that launch the iPhone 6, iPhone 6 Plus, Apple Watch, and an intriguing new payment platform, Apple Pay were revealed to the world.

Thanks to its tightly integrated iOS ecosystem, Apple’s hardware tends to feel less commodity-like compared to its peers and, as a consequence of Apple’s integration in users’ lives, the explicit and implicit costs of switching mount.

Its iPhones, iPads, iMacs, and the newest addition to the family, the Apple Watch, complement each other well by synchronising everything from apps to media (music, films and TV shows) to personal data (contacts, calendars, photos, etc.) through its iCloud and iTunes platforms. Apple’s ever growing application universe is a clear money-spinner.

Given the typically short product replacement cycle of 2-4 years for personal electronics, building a loyal customer base is thereby essential to the success of the business over the long-term in this maturing and highly competitive market.

It is generally thought that this loyalty lies on the sleek design, interface, simplification and sheer “wow” of their products. However, whilst the techies will froth on the screen size and resolution, the more meaningful business development is Apple’s grip on users’ lives. FT’s Lex column harpooned this fact in their column of 5th September stating that “most of those who shell out for the next iPhone will not be buying a phone, they are paying a toll”.

This is a toll to a near private garden. The iOS system is relatively simple when operated from within. However, access from a different operating system (say Android) can often be fraught with difficulty. Much of the data, especially licensed media, is either non-transferable or give people a very hard time when they try. For Apple users, hardware upgrades is as much a means to maintain access to the system as enjoying increasingly smaller benefits in feature specifications.

If confirmation were sought of this, it has arrived in the form of Apple Pay. Apple Pay utilises NFC (near-field communication) technology to enable contactless credit card payments in physical stores and allows ‘one-click’ online purchases (no card details to fill in) via the new iPhone and the Watch. While it may not contribute materially to near-term revenues, it offers a potentially valuable service that will further cement customers to the iOS system, if proved successful. Once the phone or the watch becomes your wallet, it will become more challenging to persuade users to depart.

In a stroke, Apple Pay is poised to take advantage of US$12 billion of daily transactions value in the US. Already, it gained strong financial institution and retail endorsements with negotiations held in typical Apple secrecy. Early backers include eleven of the biggest US card issuers including Visa, Mastercard, American Express and several major banks, collectively representing 83% of the market. Retailers such as McDonald’s and Walgreens are also on board. Further, they will be paying Apple 15 cents for every US$100 purchase for this privilege, an impressive feat of Apple’s bargaining power in persuading the key players in the payment industry to give up a slice of their revenue, something neither Google Wallet nor CurrentC (developed by MCX – Merchant Current Exchange) has managed to achieve.

As mobile devices handles increasingly sensitive personal information such as health/fitness records and payment details, data privacy and security is paramount to the integrity of the business, especially in light of the recent iCloud hacking debacle. In attempt to address these concerns, credit card details will not be stored nor shared on the device or in Apple’s servers. Instead, a transaction is authorised via one-time payment numbers, dynamic security codes, touch ID, and Apple forfeits a potentially lucrative opportunity to monetise user data by not tracking user purchases.

Whilst the technology is nothing new, Apple has timed its launch well. A major change set to occur in the payment landscape will require the majority of some nine million merchants to deploy new hardware in their stores within the next year, in compliance with the EMV (Europay, MasterCard & Visa) standard, and to reduce fraud levels rampant in the traditional magnetic strip system. Banks have made concerted efforts to push merchants to upgrade their POS (point of sale) systems to the ‘Chip & Pin’, widespread in Europe but virtually non-existent in the US (which still uses the traditional system). From 2015 onwards, issuers like Visa and MasterCard will no longer cover the cost of credit card fraud for retailers still on the old system. The new terminals should allow both PIN and NFC transactions, and streamlining of the online payment could also help speed up the uptake of Apple Pay.

iTunes revolutionised the music industry back in the mid-2000s. For the time being, card issuers and merchants believe that Apple Pay is a benign partner, forecasting an increase in transaction volumes to offset the fees they surrender to Apple. The transition process will take time, it remains to be seen whether this system, with its 800 million credit cards already on file (via iTunes Store), will disrupt to the payment industry on a similar scale.As ever, Apple’s product launches are greatly anticipated and 9th September was no exception. At that launch the iPhone 6, iPhone 6 Plus, Apple Watch, and an intriguing new payment platform, Apple Pay were revealed to the world.

Thanks to its tightly integrated iOS ecosystem, Apple’s hardware tends to feel less commodity-like compared to its peers and, as a consequence of Apple’s integration in users’ lives, the explicit and implicit costs of switching mount.

Its iPhones, iPads, iMacs, and the newest addition to the family, the Apple Watch, complement each other well by synchronising everything from apps to media (music, films and TV shows) to personal data (contacts, calendars, photos, etc.) through its iCloud and iTunes platforms. Apple’s ever growing application universe is a clear money-spinner.

Given the typically short product replacement cycle of 2-4 years for personal electronics, building a loyal customer base is thereby essential to the success of the business over the long-term in this maturing and highly competitive market.

It is generally thought that this loyalty lies on the sleek design, interface, simplification and sheer “wow” of their products. However, whilst the techies will froth on the screen size and resolution, the more meaningful business development is Apple’s grip on users’ lives. FT’s Lex column harpooned this fact in their column of 5th September stating that “most of those who shell out for the next iPhone will not be buying a phone, they are paying a toll”.

This is a toll to a near private garden. The iOS system is relatively simple when operated from within. However, access from a different operating system (say Android) can often be fraught with difficulty. Much of the data, especially licensed media, is either non-transferable or give people a very hard time when they try. For Apple users, hardware upgrades is as much a means to maintain access to the system as enjoying increasingly smaller benefits in feature specifications.

If confirmation were sought of this, it has arrived in the form of Apple Pay. Apple Pay utilises NFC (near-field communication) technology to enable contactless credit card payments in physical stores and allows ‘one-click’ online purchases (no card details to fill in) via the new iPhone and the Watch. While it may not contribute materially to near-term revenues, it offers a potentially valuable service that will further cement customers to the iOS system, if proved successful. Once the phone or the watch becomes your wallet, it will become more challenging to persuade users to depart.

In a stroke, Apple Pay is poised to take advantage of US$12 billion of daily transactions value in the US. Already, it gained strong financial institution and retail endorsements with negotiations held in typical Apple secrecy. Early backers include eleven of the biggest US card issuers including Visa, Mastercard, American Express and several major banks, collectively representing 83% of the market. Retailers such as McDonald’s and Walgreens are also on board. Further, they will be paying Apple 15 cents for every US$100 purchase for this privilege, an impressive feat of Apple’s bargaining power in persuading the key players in the payment industry to give up a slice of their revenue, something neither Google Wallet nor CurrentC (developed by MCX – Merchant Current Exchange) has managed to achieve.

As mobile devices handles increasingly sensitive personal information such as health/fitness records and payment details, data privacy and security is paramount to the integrity of the business, especially in light of the recent iCloud hacking debacle. In attempt to address these concerns, credit card details will not be stored nor shared on the device or in Apple’s servers. Instead, a transaction is authorised via one-time payment numbers, dynamic security codes, touch ID, and Apple forfeits a potentially lucrative opportunity to monetise user data by not tracking user purchases.

Whilst the technology is nothing new, Apple has timed its launch well. A major change set to occur in the payment landscape will require the majority of some nine million merchants to deploy new hardware in their stores within the next year, in compliance with the EMV (Europay, MasterCard & Visa) standard, and to reduce fraud levels rampant in the traditional magnetic strip system. Banks have made concerted efforts to push merchants to upgrade their POS (point of sale) systems to the ‘Chip & Pin’, widespread in Europe but virtually non-existent in the US (which still uses the traditional system). From 2015 onwards, issuers like Visa and MasterCard will no longer cover the cost of credit card fraud for retailers still on the old system. The new terminals should allow both PIN and NFC transactions, and streamlining of the online payment could also help speed up the uptake of Apple Pay.

iTunes revolutionised the music industry back in the mid-2000s. For the time being, card issuers and merchants believe that Apple Pay is a benign partner, forecasting an increase in transaction volumes to offset the fees they surrender to Apple. The transition process will take time, it remains to be seen whether this system, with its 800 million credit cards already on file (via iTunes Store), will disrupt to the payment industry on a similar scale.

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