Apple’s new P2P payment functionality comes at a time when demand and competitiveness for mobile payments services is growing significantly. Apple currently provides online and in-store payments through Apple Pay and the only market left to enter was P2P payments. However, even as a more rounded mobile payments player Apple Pay will find it difficult to overcome its inherent limitations and become a major global payment tool.
Apple has revealed the new series of iPhone with new features to mark the 10th anniversary of the iPhone. The new iOS 11 operating system software will add P2P payments, marking Apple’s entry into the last of the major mobile payments verticals.
Apple has been planning to upgrade the iMessage app to become a multifunctional platform where consumers can conduct a range of activities (e.g. gift-giving, P2P payments). By including P2P functionality, Apple’s messaging platform can now compete with other apps that already offer this option (Venmo, Square).
Current Apple Pay users will need to first upgrade their existing software to the latest version. P2P payments can then be made to other Apple Pay users via iMessage; transferred credit is stored within a new prepaid account attached to Apple Pay called Apple Pay Cash. Credit can then be used for purchases via Apple Pay. Although a step up in convenience for Apple Pay users, the new P2P payments feature is inherently limited to Apple device owners (with recent models of iPhone, iPad or Apple watch which are maximum 2 years old), meaning it has a limited market opportunity.
Apple Pay has been on the market since 2015 and so far it has proved to be a qualified success as the most prominent Western mobile wallet. During the Apple Worldwide Developers Conference, it has been claimed that Apple Pay is the number one contactless payment service on mobile devices in the US and by the end of the year will be accepted in over 50% of retailers in the country.
In 2016, the transaction value by Apple Pay was estimated at $90bn, making it the fourth-largest alternative payment tool globally (source: GlobalData). However, it still lags behind global leaders such as PayPal and particularly Alipay (which processed five times the transaction value in the same year). Further, while Apple Pay’s transaction value is impressive in a vacuum, it is dwarfed by the $5.66tn spent by US consumers at the point of sale using payment cards in 2016.
Apple Pay is available in other markets including the UK, France, and Australia and it’s likely that although the new P2P functionality will only be available in the first instance in the US, it will become available in other countries where it operates. However, it will have to compete with other already established P2P payment options (e.g. Pingit in the UK, Venmo in the US).
This new feature will be beneficial for current Apple Pay users (it targets only Apple users), as it allows quick and fast payments between peers. If it were to be available to other type of devices, it will have a far greater reach and growth potentially. Although the possibility to expand exists, Apple’s long standing “walled garden” policy will not allow for this. As a result, this move into P2P and the launch of two new iPhone models is unlikely to drastically change the fortunes of Apple Pay.
By Madalina Aghinita, Consumer Payments Analyst