Apple is building business in emerging markets, including China, Brazil, India, Russia. The success of mobile fund transfer systems is apparent in Africa, in Kenya such services now account for around a quarter of Kenya's GDP.
Meeting that need Apple's system will leapfrog existing carrier networks to provide payments as a service to millions, with the added advantage of multiple layers of security:
- Two-factor authentication;
- Storage of payments data within Secure Enclave on chip
- Credit checks when creating the iTunes account;
And further layers of security introduced by the credit card firms and banks (Visa, Mastercard, American Express) alleged to be partnering in the Apple project -- these partners will handle things outside of Apple's core competencies, such as fraud protection.
Mobile payments will help Apple build in new markets.
People who need to buy products and services online who do not have conventional bank accounts should be able to use pre-payment credit cards to access Apple's system.
That’s what the iTunes Pass system is about.
Customers will be able to put cash into their account to spend with online or offline retailers, or exchange with friends or family members.
A huge amount of investment is taking place to boost the fintech sector in developing markets. Accenture today announced the winners of FinTech Innovation Lab Asia-Pacific, featuring tools for credit analysis, data protection, and alternative lending.
Payments are just the beginning. It's easy to imagine crowdfunding services like Kickstarter enabling investors in developing economies to use Apple mobile payments to make funds available to entrepreneurs. In future there will be opportunities to develop mobile loans services.
The conventional banks are likely to see many of their more profitable services replaced or superseded by Apple and other fintech pioneers.
In typical Apple style the company has managed to be both super-secretive and pretty open about its interest in the sector. CEO Tim Cook has said: "The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID. But we're not limiting ourselves just to that… it's a big opportunity on the platform."
Some will ask why Apple will succeed. They should realise Apple is not simply throwing a few ideas up against the wall to see what sticks. It has (in typical Cook style) quietly assembled the infrastructure and foundations to support these new systems for years, for example:
- The iTunes payment and billing infrastructure;
- Recruitment of experts in the field, including Tommy Elliot, a former senior director for Visa and Andrew McCarthy, a former top mobile payments executive for J.P. Morgan Chase Bank.
- Sundry software patents
- Low key system tests
- Claimed purchase of the Easypay domain
- Robust smartphone security.
Ease of use is Apple's trademark. Why would that change? Easy. Payments.
Apple does face significant future challenges:
How much will the service cost? Typically payment processing fees hit around 2-3 percent. How much will Apple want? Who pays? Will consumers use this or gravitate to cheaper services?
Security: Rest assured once real money is involved, Apple's systems will become a much, much bigger target for criminal hackers. Will its security systems cope?
Partnerships: Apple won't become a bank. It will work with existing institutions because they have competencies it lacks. Will they all be willing to share with Apple? Jamie Dimon of JPMorgan Chase has previously said the new payment players "want to eat our lunch".
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