Apple Pay chief says Apple not out to disrupt credit card industry

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Apple VP Jennifer Bailey, the executive in charge of Apple Pay, details the genesis of the mobile payments solution and details its ongoing success in a new interview.

Jennifer Bailey
Apple VP Jennifer Bailey at the Fortune Brainstorm Reinvent conference.


Speaking with Fortune executive editor Adam Lashinsky at the publication's Brainstorm Reinvent conference in Chicago on Tuesday, Bailey said Apple did not seek to disrupt the payments industry with Apple Pay. Instead, when the company launched the product four years ago, it wanted to introduce an attractive consumer solution that worked in tandem with established payment methods.

"When we thought about Apple Pay, we thought, there are a lot of payments out there that our customers already love and trust," Bailey said. "We don't sit around and think about, what industry should we disrupt?' -- we think about, what great customer experiences can we develop?'"

Apple typically finds huge success in the role of disruptor -- see iPhone, Mac and iTunes -- but the company's typical approach was not a good fit when it came to the entrenched payments market. Of particular concern was government oversight, according to Bailey.

Becoming a credit card replacement would make Apple a de facto financial institution, thus requiring a bank charter and, with it, strict regulation. Bailey was adamant that Apple has no desire to be regulated.

Indeed, Apple is looking to expand beyond payments and into what Bailey refers to as access. The company will next week roll out student ID cards for Duke University, the University of Oklahoma, and the University of Alabama in a solution that combines payments with NFC-based building access. Students with compatible iPhone and Apple Watch devices will be able to provision their ID cards in Wallet to enter dorms, pay for laundry and perform other campus functions.

Apple appears to be pushing the access angle as a major function of Wallet and supporting NFC-capable devices. Bailey mentioned Apple's work to facilitate adoption in corporate settings, as well as by hotels. Apple itself uses on-device credentials to gate access at its Apple Park campus -- a technology showed off at WWDC this year.

"It's a tremendous new area for us to focus on, which is really access," Bailey said.

Both Starwood Hotels and Hilton Worldwide rolled out iPhone and Apple Watch-compatible hotel key cards in 2014, though the implementations were based on the Bluetooth Low Energy protocol, not NFC.

Bailey took today's interview as an opportunity to tout recent Apple Pay statistics, saying the payments system should be supported by 60 percent of U.S. retail locations by the end of the year. Further, Apple Wallet is live in 24 countries, unsurprisingly experiencing faster growth outside of Apple's domestic market. The latter metric is likely attributed to consumer familiarity with pre-existing touchless technologies, especially in Asia.

As for transit, another key Wallet feature, iPhone and Apple Watch owners can use their devices to ride public transport systems in 12 cities worldwide. Of those, Tokyo, Beijing, and Shanghai integrate closed loop technology, while London and Moscow rely on open loop technology, the report said. Bailey said the product is seeing rapid high penetration in Tokyo, where Apple Pay launched with support for JR East's Suica mobile transit card system in 2016.

Finally, Bailey said that while Apple makes money off Apple Pay transactions, the new features coming to Wallet are designed to keep users loyal to Apple platforms.
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Comments

  • Reply 1 of 24
    Well most disruptions don't start off with people trying to actually disrupt an industry, they just try to get a niche and the rest is history. However in this case, Apple being as big as it is, if they said that they were trying, they would have regulatory boards in America and Europe all over them. For Apple to disrupt the credit card industry, imo, they would have to go after the banks, but banks now are much bigger and more powerful than they used to be. I'm not saying it's impossible but it's would be a pretty hard task to accomplish. 
    edited September 25
  • Reply 2 of 24
    Please explain what “open loop” technology for London tube is - and it’s (dis)advantage is. 
    lostkiwi
  • Reply 3 of 24
    SoliSoli Posts: 8,283member
    My only concern about the student IDs via NFC if they will work when the device has no battery power. While that's certainly handy, I don't think it's safe that someone could lose or have an iPhone stolen and then when the power runs out it will still allow access to dorm by pressing the Sleep/Wake button. 

    Please explain what “open loop” technology for London tube is - and it’s (dis)advantage is. 
    I think this will answer everything for you:


    LukeCage said:
    Well most disruptions don't start off with people trying to actually disrupt an industry, they just try to get a niche and the rest is history. However in this case, Apple being as big as it is, if they said that they were trying, they would have regulatory boards in America and Europe all over them. For Apple to disrupt the credit card industry, imo, they would have to go after the banks, but banks now are much bigger and more powerful than they used to be. I'm not saying it's impossible but it's would be a pretty hard task to accomplish. 
    I believe Apple choose the best solution and I'm happy to say it's the solution I proffered years before Apple Pay was ever introduced. My only wish is that the extra security for using Apple Pay would result in lower transaction fees for retailers which would help them advertise this option more, and for mom-and-pop shops with discreet card readers that have mostly supported Apple Pay (and all other NFC-based scanners to have the company that supplies the device notify them that they can take these *Pay payments.

    If anyone wants to help with increasing the saturation in your area you can order—free of charge—register and door stickers from Apple that you can give to those businesses when you come across them. I don't do it for Apple; I do it for myself, because the sooner I can reach a tipping point where I can more freely not carry my physical cards on me the more convenient my life will be.

    edited September 26 lostkiwi
  • Reply 4 of 24
    LatkoLatko Posts: 122member
    I guess she means to say that ApplePay is targeted specifically at the smaller transactions - but not afraid to scale up to the market of larger transactions (coincidentally pulverizing the credit card market)
  • Reply 5 of 24
    entropysentropys Posts: 1,249member
    To be honest, it is clear Apple didn’t set out to disrupt the industry. That is why adoption has been slower and rolled out as slowly as it has. Heck in my heavily regulated country, which has resulted in a “big four” banks, the oligarchs are so wedded to their own solutions they believe they can bend Apple to their will, and only one of them has Apple Pay.

    Apple could have done it differently. To avoid regulation of Apple as a whole of course, it could have just set up its own subsidiary competitor to banks and credit card companies.  It still could of course. It would be a lot of work, and it might be easier just to buy a smallish global bank. The mere threat though could encourage recalcitrants to get on board with Apple Pay.

    This interview, of course, was most definitely not intended as a possible threat or reminder that it could do just that.
  • Reply 6 of 24
    Apple Pay is PayPal but optimized for Apple products.  I still use PayPal more but could change as ApplePay is accepted more universally 
  • Reply 7 of 24
    entropys said:
    To be honest, it is clear Apple didn’t set out to disrupt the industry. That is why adoption has been slower and rolled out as slowly as it has. Heck in my heavily regulated country, which has resulted in a “big four” banks, the oligarchs are so wedded to their own solutions they believe they can bend Apple to their will, and only one of them has Apple Pay.

    Apple could have done it differently. To avoid regulation of Apple as a whole of course, it could have just set up its own subsidiary competitor to banks and credit card companies.  It still could of course. It would be a lot of work, and it might be easier just to buy a smallish global bank. The mere threat though could encourage recalcitrants to get on board with Apple Pay.

    This interview, of course, was most definitely not intended as a possible threat or reminder that it could do just that.
    In the US, most of the obstacle has been from actual retailers cause payment systems are disjointed.
    Elsewhere, it's the banks the obstacle. But, the problem is people don't necessarily want to change banks just to get Apple pay. Forcing them to do so would be a major hitch.
    And yeah, setting up a bank with worldwide operations that would provide the same level of service as people are getting from their current bank would be a hell of a lot of work; buying one would be very expensive and probably would halt all progress of Apple pay at other existing banks.

    They don't really have a good option but what they are doing right now.
    Rayz2016caladanian
  • Reply 8 of 24
    eriamjheriamjh Posts: 1,077member
    ApplePay is about security.  The CC industry is about making money.  They don’t care about theft because it’s cheaper than implementing security. 

    So so why don’t they want to implement ApplePay? Control.  Not invented here.  Costs.  
    mbenz1962lostkiwicaladanian
  • Reply 9 of 24
    Soli said:
    My only concern about the student IDs via NFC if they will work when the device has no battery power. While that's certainly handy, I don't think it's safe that someone could lose or have an iPhone stolen and then when the power runs out it will still allow access to dorm by pressing the Sleep/Wake button. 

    Please explain what “open loop” technology for London tube is - and it’s (dis)advantage is. 
    I think this will answer everything for you:


    LukeCage said:
    Well most disruptions don't start off with people trying to actually disrupt an industry, they just try to get a niche and the rest is history. However in this case, Apple being as big as it is, if they said that they were trying, they would have regulatory boards in America and Europe all over them. For Apple to disrupt the credit card industry, imo, they would have to go after the banks, but banks now are much bigger and more powerful than they used to be. I'm not saying it's impossible but it's would be a pretty hard task to accomplish. 
    I believe Apple choose the best solution and I'm happy to say it's the solution I proffered years before Apple Pay was ever introduced. My only wish is that the extra security for using Apple Pay would result in lower transaction fees for retailers which would help them advertise this option more, and for mom-and-pop shops with discreet card readers that have mostly supported Apple Pay (and all other NFC-based scanners to have the company that supplies the device notify them that they can take these *Pay payments.

    If anyone wants to help with increasing the saturation in your area you can order—free of charge—register and door stickers from Apple that you can give to those businesses when you come across them. I don't do it for Apple; I do it for myself, because the sooner I can reach a tipping point where I can more freely not carry my physical cards on me the more convenient my life will be.


    The newest iPhone supports an option to still work for NFC with a dead battery.  

    In respect to a person finding a lost iPhone and using it to gain access to a building, this is also true for any employee and student ID that is lost.  In most cases, there is no need to show your photo ID to access a building; one just taps the badge to the reader.  A thief gets the same access as a student or employee if the card isn’t reported as lost.   Using a phone’s NFC can mean some security loss in that the person’s face is not associated with building access. I suppose that an added safety feature of Apple’s method is that Face ID on the newest phones would be a potential means to verify that the person accessing the building is in fact the phone’s owner and appropriate to gain access. 

    On the transit pass comment, Portland, Oregon’s Trimet already supports Apple Pay.  It has since summer 2017.  I have to think that Portland is not the only US city to support Apple Pay for transit. 
    edited September 26 space2001GeorgeBMacStrangeDays
  • Reply 10 of 24
    lkrupplkrupp Posts: 6,396member
    LukeCage said:
    Well most disruptions don't start off with people trying to actually disrupt an industry, they just try to get a niche and the rest is history. However in this case, Apple being as big as it is, if they said that they were trying, they would have regulatory boards in America and Europe all over them. For Apple to disrupt the credit card industry, imo, they would have to go after the banks, but banks now are much bigger and more powerful than they used to be. I'm not saying it's impossible but it's would be a pretty hard task to accomplish. 
    You have a very strange take on the term “disrupt”. Apple certainly “disrupted” the cellphone industry yet regulatory boards didn’t seem to mind. Apple has disrupted the watch industry too. In fact Apple has turned these two industries upside down and on their ears. These industries were forced to change their entire business models because of Apple’s entry. So what’s the problem with disrupting the banking industry in a like manner? How would Apple showing customers a better, more secure, more convenient way of paying for things cause alarm bells to go off at the D.O.J.? 
  • Reply 11 of 24
    That thing about not wanting to be a bank or regulated may explain something that is, to me, missing from Apple Pay.   That is:

    I would love to be able to transfer cash from my ApplePay to my grandson's ApplePay using the newer ApplePay Cash -- but I can't because he doesn't have ApplePay!   And, he won't have it till he's old enough to get a credit card.

    It would be nice if I could simply sweep money into an Applepay cash account for him.   But, it seems that that would bring Apple too close to becoming a bank.    That's a too bad.
  • Reply 12 of 24
    dewmedewme Posts: 1,685member
    I'm not seeing any overlap between what Apple Pay provides as the physical credit card replacement and what credit card companies provide as credit and lending institutions. Apple is simply providing a much more secure authentication & authorization model than an encoded magnetic stripe and a anonymizing proxy for the actual physical credit card. Apple is not lending you the money like Visa, MasterCard, American Express, Barclay, or Discover are doing. It's a totally different game. Inferring that Apple is stepping on credit card companies' toes is like saying that the maker of the locks that protect bank vaults are somehow infringing on the bank's banking business.

    If you are unclear about what "disruption" involves I suggest any of Clay Christensen's talks, but this one is very succinct and to the point: 


  • Reply 13 of 24
    Why is Apple being so defensive? Why shouldn't it be out to disrupt the credit card industry!?
  • Reply 14 of 24
    Perhaps Apple Pay should instead be a means of instant payment as well as a system for using a so-called “stablecoin” for money transfers. Avoid the banking system entirely. This is also being done by the cryptocoin exchange called Gemini, started by the Winklevoss twins.

    https://cryptodaily.co.uk/2018/09/gemini-dollar-approved-stablecoin/
    edited September 26
  • Reply 15 of 24
    Why is Apple being so defensive? Why shouldn't it be out to disrupt the credit card industry!?
    It SHOULD be a disruptor. Playing nice with the existing system won’t allow them to be any better than the existing system.
  • Reply 16 of 24
    SoliSoli Posts: 8,283member
    wanderso said:
    Soli said:
    My only concern about the student IDs via NFC if they will work when the device has no battery power. While that's certainly handy, I don't think it's safe that someone could lose or have an iPhone stolen and then when the power runs out it will still allow access to dorm by pressing the Sleep/Wake button

    Please explain what “open loop” technology for London tube is - and it’s (dis)advantage is. 
    I think this will answer everything for you:


    LukeCage said:
    Well most disruptions don't start off with people trying to actually disrupt an industry, they just try to get a niche and the rest is history. However in this case, Apple being as big as it is, if they said that they were trying, they would have regulatory boards in America and Europe all over them. For Apple to disrupt the credit card industry, imo, they would have to go after the banks, but banks now are much bigger and more powerful than they used to be. I'm not saying it's impossible but it's would be a pretty hard task to accomplish. 
    I believe Apple choose the best solution and I'm happy to say it's the solution I proffered years before Apple Pay was ever introduced. My only wish is that the extra security for using Apple Pay would result in lower transaction fees for retailers which would help them advertise this option more, and for mom-and-pop shops with discreet card readers that have mostly supported Apple Pay (and all other NFC-based scanners to have the company that supplies the device notify them that they can take these *Pay payments.

    If anyone wants to help with increasing the saturation in your area you can order—free of charge—register and door stickers from Apple that you can give to those businesses when you come across them. I don't do it for Apple; I do it for myself, because the sooner I can reach a tipping point where I can more freely not carry my physical cards on me the more convenient my life will be.

    The newest iPhone supports an option to still work for NFC with a dead battery.  
    Why are you repeating what I just wrote?
  • Reply 17 of 24
    volcanvolcan Posts: 1,711member
    Why is Apple being so defensive? Why shouldn't it be out to disrupt the credit card industry!?
    Don't you need a credit card to use Apple Pay?
  • Reply 18 of 24
    SoliSoli Posts: 8,283member
    volcan said:
    Why is Apple being so defensive? Why shouldn't it be out to disrupt the credit card industry!?
    Don't you need a credit card to use Apple Pay?
    Or a debit card, but to the comment in which you're responding, Apple Pay in is no way designed to disrupt the CC, but rather to make them safer and more convenient to use.
    edited September 26
  • Reply 19 of 24
    JWSCJWSC Posts: 197member
    That thing about not wanting to be a bank or regulated may explain something that is, to me, missing from Apple Pay.   That is:

    I would love to be able to transfer cash from my ApplePay to my grandson's ApplePay using the newer ApplePay Cash -- but I can't because he doesn't have ApplePay!   And, he won't have it till he's old enough to get a credit card.

    It would be nice if I could simply sweep money into an Applepay cash account for him.   But, it seems that that would bring Apple too close to becoming a bank.    That's a too bad.
    I wish Apple would become a bank.  But with the power the credit card and banking industries wield Apple needs to tread carefully for a while.

    A close friend of mine is a senior executive at a middle tier bank.  He and others on the bank’s leadership team will sit in conference rooms for hours spending their creative juices trying to come up with new ways to nail their customers with additional fees: late payment fees, overdraft fees, ATM fees, statement fees, transfer fees, egregious currency exchange rates with additional fees, excess activity fees, check image fees, and the list goes on.  This is how they make most of their money and these fees typically hit the least well off among us that are barely able to keep up with their living expenses.

    If any industry needs to be disrupted it’s the banking and credit card industry.  If Apple were to enter this space I have every reason to believe they would design their credit and banking services to put the customer first, as opposed to designing a transactional system to prey upon them.
    edited September 26
  • Reply 20 of 24
    volcanvolcan Posts: 1,711member
    Soli said:
    ...but rather to make them safer and more convenient to use.
    Well it doesn't always work out that way. I use it whenever it is available but last week I had a bad experience. Totally not Apple's fault, it was Coffee Bean and Tea Leaf in downtown LA on Wilshire. I purchased a pastry and a coffee for $4.75. I paid with Apple Pay and got the approved checkmark and audible tone so I started to walk away when the cashier called me back and said it did not go through, so I tried it again. Same checkmark and tone but she said it didn't go through, so I ended up paying cash. I then logged onto my bank account and sure enough both Apple Pay transactions were there. I went back to the cashier to show her and she said that I would have to wait 72 hours to get a refund. I demanded to speak to the manager. The manager came out and confirmed the same claim about the 72 hours deal. I started getting really pissed off and nearly got thrown out of the store, but after he called his supervisor he refunded one of the charges but not the other. Eventually after a long discussion he called his supervisor again and they refunded the other charge as well. Apple Pay may work well but sometimes store terminals may not be configured correctly. As I left the cashier said that particular point of sale station is always giving problems, but somehow it was still my fault.
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