Death by 1,000 Cuts: Apple, Facebook and Bank Fees

Last week, it was disclosed that Apple’s iOS 8 would allow consumers to scan their credit cards for mobile payments.

The announcement barely registered on the banking industry’s radar, especially with all the iPhone 6 hubbub. It should have. This is just one more in a series of developments that put banks at risk of getting a bad taste of their own medicine, and that medicine would be fees.

When you take into account the array of technology companies, you realize that banks are increasingly going to find well-armed intermediaries preventing the unencumbered access to their customers and protective customers.

Back in the 1990s, the talk in media was about “owning the pipe.” The theory went back then – and has been supported through the years — that content producers wouldn’t matter because whichever company “owns the pipe,” meaning controlling the entity that delivers the content, would control the majority of media economics. Cable companies were considered owners of the pipes, and to this day companies like Time Warner Cable and Cablevision continue to leverage their control of distribution and grow.

Technology companies are increasingly “owning the pipes” of customer access. Twitter, Facebook/WhatsApp, Apple, Google — these companies are increasingly controlling the digital communication channel. Every customer, it seems, at some point passes through these companies, and in many cases, a great swath of customers are ONLY tapping digital media and applications through one or all of these companies. For some, Facebook and only Facebook is their source of digital information, for example. These companies are even extending their reach into the plumbing of the internet, trying to control not just the content flow, but the way the internet’s data flows. This is the so-called net neutrality issue.

What happens when banks want to access their customers and Facebook, Google, and Twitter stand in the way? What happens when those customers want to pay for things through, say, Facebook? As I am sure David Marcus knows, the banks that want to take part in those transactions will have to pay … wait for it … fees.

This is why Apple’s announcement was so noteworthy. From 9to5mac.com:

In iOS 8, Apple has a new feature in Safari that allows users to scan a credit card with the device’s camera rather than manually entering the number when making a purchase online.

When entering a credit card number into a form online to, for example, make a purchase, Safari already allowed users to quickly select credit cards stored in its Passwords & AutoFill settings. You can still do that, but in iOS 8 you’ll now also have the option to select “Scan Credit Card” and snap a picture of the card. Apple then uses optical character recognition of sorts to input the number into the text field in Safari. There’s also a way to scan and save cards using the camera directly from within the Passwords & AutoFill settings.

Website developers don’t have to do anything to enable the feature, as Safari appears to automatically detect when a credit card number is being requested and presents the option to scan above the keypad.

The Verge explained the significance:

Apple hasn’t cracked the mobile payments market yet, but the iPhone maker is aiming to make online orders a little easier. …The new option is visible at sites like Amazon when you typically enter credit card information manually or through the existing AutoFill feature. As it’s a built-in feature, web developers won’t need to enable it and the credit card scanning will automatically fill out a web form for an online order.

This gives Apple even more control over the finances of its customers. What if Apple wanted to disable the AutoFill feature on, say, Bank of America credit cards, unless BofA paid it fees? Same with Touch ID authentication. Touch ID is ripe for licensing fees. At some point, the leverage between banks and Apple and the other major tech companies will swing to the tech companies’ favor. In case you didn’t notice, Apple, for example, has a lot of customers.

While all this is happening, banks are doing – very little. If I worked at Bank of America or Wells Fargo, I would be concerned about the rise of these technology companies. I expect them to demand economics to tap into their “pipes,” and that will put yet more pressure on bank margins, which continue to be under pressure regardless. What’s more, that banks will be maimed by the thousand cuts of fees is nothing short of ironic and astounding. Who would have thought that an online service designed to let college classmates know about their colleagues might play a role in banking’s demise? As they say, life is stranger than fiction.