What Banks Can Learn From the Decline of Apple Pay
Around this time last year, the payments industry waited with much anticipation as Apple prepared to announce a move into mobile transactions that was expected to redefine the ecosystem as we knew it. From that anticipation, Apple Pay was born, and now nearly one year after its introduction the solution is dominating headlines again – this time for less favorable reasons.
In a recent post from PYMNTS.com, retail data analytics firm InfoScout is reporting Apple Pay usage has been on a steady decline since a seemingly promising upswing in March 2015. In the three months that followed, usage fell two points from 15.1 to 13.1 percent. What’s more, of the nearly 40 percent of consumers surveyed in March who said they had used Apple Pay to complete a transaction, only 23 percent still said “yes.”
Above all, the “killer stat” is Apple Pay’s 15 percent dip in committed users – down to 33 percent as of June 2015. While many in the payments, retail and financial industries are dumbfounded, Apple’s steady decline is really not that surprising. What this stagnation really reveals is the effectiveness of marketing versus the organic uptake of users – a critical, and as we now know potentially crippling, difference when it comes to successful mobile payments adoption. As the TV spots, ATM splash screen and hype surrounding the launch of the iPhone 6 have all dwindled, it appears Apple Pay usage has as well.
Understanding Apple Pay’s dilemma
So why is this happening? To the average consumer thrown into a tap-and-pay product, the act of using this feature itself to complete a transaction is fairly trivial and hardly worth a new, standalone product. That payment experience alone is too different from anything the consumer previously used for them to remember –or even care – about making it a habit unless they are constantly reminded to. When customers remember to use Apple Pay where it is available, the product is a success, but the challenge is having enough acceptance or ongoing reminders of the tap-and-pay payment option to make it a success.
A much different scenario unfolds within the context of mobile banking. Informing the user about a relatively seamless extension to the way their money is managed in the new form of tap-and-pay can be relatively painless and can lend itself to organic growth – which is much more cost-effective and sustainable than marketing. It’s hard to apply this concept to the iOS eco-system because Apple is not flexible to mobile banking acting as a distribution channel for the tap-and-pay feature. This has forced all bank cards into an aggregated Passbook wallet that, like I described above, is very out of the context of the users’ typical banking application.
More often than not product managers inside big banks assume they must get behind big brands and the products behind those big brands quickly. We’re already starting to see the consequences of that approach play out with Apple Pay as usage continues to drop off. Unfortunately for the banks who are now locked into Apple Pay, the technology will continue to grow at a much slower rate than what they are paying for. They do, however, still have a chance to turn things around and take back control from Android Pay by deploying their own mobile payment solution.
Android Pay: no easy fix
Android Pay is deployed on roughly 5 percent of all Android devices. By extension, that would mean most major banks with their own Android-based mobile banking application overlap with Android Pay on 5 percent of their customer’s devices. Based on these numbers alone, bank product managers are faced with two distinct choices:
- Encourage mobile users to download and access their credit card accounts through Android Pay or
- Modify their existing banking app with their own tap-and-pay feature.
With option two, the conversion rate and lack of additional steps seems like a more practical and favorable approach. More importantly, banks don’t have to worry about competing with another application to keep users engaged and coming back. With option two, banks can take a low-cost approach and organically grow payments into their business.
Despite an incredibly low market share, Android Pay has had no trouble drumming up support from financial institutions, which are spending upwards of $10 million in marketing alone to get their customers to use the solution. Like Apple Pay, banks can spend as much money on promoting Android Pay but at what cost?. The reality is tap-and-go payments will not see widespread consumer adoption without steady, frequent exposure via a familiar user experience. An initial high-profile launch or big marketing budget will only go so far.
For contactless payments to endure, banks are better off using their own apps to court users. They already employed this approach with the “remote check cashing feature” and experienced widespread success by continuously making users aware they could perform digital check deposits until the practice became second nature. The same opportunity is there for the taking with payments. A bank that deploys their own solution within their own app faces far fewer friction points than a bank that leans on Android Pay, Apple Pay or any other third party.
Playing for the long run
Critics of this approach will argue that infrastructure growth of contactless payments technologies have been far too slow for banks to build it into their own apps. While that growth may have been slow, mobile banking presents a unique opportunity for financial institutions to grow alongside it. The cost of a slower acceptance rate when choosing Apple Pay or Android Pay is far outweighed by the cost of educating and convincing consumers to actually use Apple or Android Pay.
All of the money spent on advertising and marketing those platforms will outpace the growth of infrastructure, and banks will end up waiting for it to catch up. By partnering with a provider to build and deploy their own tap-and-go solution, banks have a unique opportunity to shape the future of cloud-based, contactless payments beyond their own institution.
In the long run, I don’t expect mobile payment adoption rates to continue to decline, it will improve over time. But ultimately it is banks who’ve had the historical trust relationship and it is banks who have the most to gain by fostering consumer relationships and acceptance. While the opportunity may have passed for Apple Pay, it’s not too late for financial institutions to take back control of their tap-and-go experience on their own terms.
Doug Yeager is CEO and Co-founder of SimplyTapp, the original inventor of host card emulation (HCE) technology that allows issuers to create a secure, customized and contactless payments experience on most Android devices.
