Could Apple disrupt the merchant banking space with the Watch?

A lot is riding on it

Apple Pay Credit cards

The announcement of Apple's iPhone 6 was a little underwhelming. Yes, it boasts a slimmer frame, a larger screen and more battery power but this isn't a revolutionary upgrade.

What did catch everyone's attention was Apple's first foray, be it rather late, into the increasingly attractive wearable tech market with the launch of its new smart watches range. The Apple Watch's USP is its movement and tracking diagnostics as well as its potential to be an enabler of the internet of things.

But will Apple's legendary build quality shine through or will it suffer the same fate as its competition in the wearable tech market? What might make all the difference for Apple is its ability to tightly couple its hardware and software to create product interest and consumer value.

The bank of Apple

This is an area where everyone has struggled - what is the killer user case for integrating your phone with your watch? So far, that remains to be seen, though, no doubt, early adopters will buy first and find a use second.

Apple's CEO, Tim Cook, also revealed that the Apple Watch will feature a contactless payment function as it comes with the Apple Pay feature.

Essentially, users can pay over the counter with the swipe of their Apple Watch. Not only does this give Apple a crucial edge over its immediate rivals such as Samsung's Gear, it also marks Apple's entry in to the highly competitive world of merchant banking.

By introducing its contactless payment system to the Apple Watch and iPhone 6, Apple is now encroaching on the very same space as PayPal, Amazon and Square.

To further strengthen its contactless payment offering, Apple has partnered with Visa, MasterCard and American Express. Moreover, Apple has convinced major retail and fast food chain businesses such as Nike, Disney, Subway and Toys R Us to incorporate its new mobile payment.

Mobile payment has the very real potential to catch on if Apple is able to make the experience seamless for consumers. In fact Apple could suddenly find itself as one of the largest banks in the world. Stranger things have happened.

Game changing

As if aware of the looming threat that Apple now poses, shares of Ebay Inc., which operates the PayPal service, declined by 2.8% after Tim Cook had given his presentation.

Google will also be another company concerned by Apple's incorporation of contactless payment within its Apple Watch product. Google's own mobile payment system, the Google Wallet, failed to gain any significant traction.

But now that Apple has partnered with major brands, its Apple Pay systems has a better chance of finding success in this space.

It is clear that Apple's move into contactless payments will significantly alter the mobile payment landscape but could it also alter the way retailers construct the shopping experience? Many retail outlets do not have contactless pay terminals since some still harbour reservations around the technology.

However, Apple is a brand known to improve upon existing technologies. If Apple can innovate in the contactless payment space to the same degree it did in the smartphone and laptop categories, then this could inspire more retailers to embrace mobile payment. The customer shopping experience could be completely reshaped, particularly at the point-of-purchase.

Security concerns?

Although Apple has massive potential to bring mobile payment into the mainstream, the security concerns around mobile payments is still an issue that will irk some consumers.

Only 18% of the British public have cited they trust a smartphone wallet from Apple according to a survey conducted earlier this year of 1500 smartphone users by research house Marketing Sciences.

Notwithstanding the popularity of iTunes, consumers are weary of storing sensitive banking details on an Apple product.

Moreover, the recent furore surrounding leaked celebrity images supposedly from Apple's iCloud will not exactly strengthen Apple's argument that customers' bank details will be safe and secure.

Despite this, Apple's brand perception by consumers is positive for the most part and it will no doubt work hard to alleviate customers' concerns.

Apple's entrance into the wearable tech market with its Watch is a bold move. Its introduction of Apple Pay, which will be incorporated into the Apple Watch, is even bolder. When Apple first launched the iPhone, it significantly altered the smartphone landscape.

No doubt, we can expect to see some fundamental changes in the merchant banking sector as Apple seeks to dominate the space with its first contactless payments wearable tech offering.

  • Jo Coombs is Managing Director at OgilvyOne, a customer engagement agency with more than 100 offices in 50 countries.

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