Is iBanking Apple's next big play?

21:06, May 13 2012
OPENING THE iPURSE: It is estimated that the mobile payments industry will be worth US$1 trillion by 2015.
OPENING THE iPURSE: It is estimated that the mobile payments industry will be worth US$1 trillion by 2015.

Tap. Tap. Tap. You might not have heard about near-field communications (NFC) yet, but it will be all around you soon.

Smartphones will be swiped left right and centre, as people use the mobile technology to buy coffees and catch the bus. But that's only the beginning.

Things are set to take off within the next year. And with the mobile payments industry worth an estimated US$1 trillion by 2015, banks, handsets, card companies and carriers are all keen to get their slice of the pie.

Unlike the brawling that has fragmented some overseas markets, the New Zealand approach has been remarkably civilised. Last month, bank-owned eftpos operator Paymark teamed up in a joint venture with the telcos to set up a network for everyone.

Now the idea of a walletless society no longer seems like science fiction.

"I think in New Zealand we've got a good shot at it," says Phil Deason, head of products and partners at Paymark.


"We're a heavy user of electronic cards – amongst the highest in the world. It's a small step from a card to a phone."

Retailers will need to upgrade to contactless terminals, but some are already planning to do so, he says. The framework will be ready in six months, and commercial applications should be up and running within a year.

Which raises the big question for consumers – which of the merry players will be rifling through our electronic wallets?

Let's play a word association game. Portable music: iPod. Tablet computer: iPad. NFC payments: iPurse?

After becoming ubiquitous in several emerging markets, Californian tech giant Apple has a well-deserved reputation for conducting bloodless coups.

"Apple's got this record of going in and opening up fields that nobody really believed existed – and then dominating them," says technology commentator Colin Jackson.

Google, Visa, Mastercard and PayPal have all stepped into the ring, but no company has stamped their mark on the digital wallet yet. The Google Wallet, for example, has proved to be an abject failure. So why single out Apple?

Unlike any of the other players, Apple already owns both the key mobile and payments system components.

First, there's the iTunes database – which holds the largest collection of credit card details on the web.

Then there's the several hundred thousand iPhones around New Zealand, whose proud owners queue up in droves to upgrade to the next, marginally improved iteration.

But the most damning evidence is a paper trail of NFC-related patents that Apple has been quietly filing away since 2009, with NFC widely expected to be the breakthrough feature on the iPhone 5.

The most recently granted patents make for revelatory viewing. The attached schematics are nothing more than bare-bones line drawings, but they're ringing alarm bells for some in the financial services industry.

The patents paint a picture of iTunes as a one-stop shop for syncing credit cards, making bill payments, collecting digital receipts and managing children's accounts and purchases.

Is the world's most successful company creating a monster?

Apple's latest offspring could well be some kind of union of world-class hardware, NFC and personal finance.

When it finally lurches into life, you can be sure that Kiwibank's head of online, Peter Fletcher-Dobson, will be watching proceedings closely.

"Apple have shown they have the ability to change industries, and financial services should be aware of that.

"You can look back and see what Apple's done in the music industry – that's one potential future scenario."

At face value, NFC is great news for banks, which clip the ticket on transactions.

It allows people to make retail purchases, shop online and possibly perform person-to-person "bump" payments. But if iTunes acts as the constant middleman in those processes, banks face getting cut out of the customer information feed just as they are beginning to embrace it.

However, Apple will face a challenge in equalling the trust and security associated with established banking, Fletcher-Dobson says. Banking, much more so than selling music or hardware, relies heavily on relationships.

For a company that likes to do things on its own terms, that might present some difficulties.

Deason says his focus at Paymark is on making sure the infrastructure is flexible enough to accommodate anyone with an interest, whether that be Apple or anyone else.

And as Payments NZ chief executive Steve Nichols points out, making NFC payments work inevitably requires some level of co-operation.

The various elements required include robust security, access to customer bank accounts, the ability to transmit information between banks and the physical infrastructure itself.

"In short, Payments NZ has a more end-to-end perspective and holds the view that no one party can deliver all of the above by themselves," Nichols says.

That being said, it's not just the banks that should be keeping a close eye on Apple's movements. Telecom, Vodafone and 2degrees' contribution to the NFC roundtable are the handsets, and the security element, which is embedded into sim cards.

But those features will be redundant for Apple, which plans to work the security element into the phone itself.

A report issued by IDC New Zealand on Friday said smartphones were "at the core of revenue growth" for telcos. With text and calling avenues becoming less profitable, the telcos simply can't afford to become a dumb pipe in the transaction.

Will Apple leave them out in the cold?

"Certainly, if the way they operate in the past is anything to go by, then that could be the case," Deason says.

Jackson says it would take a "mindset change" for Apple to open up its system and cut deals with the various retailers and partners.

But that doesn't necessarily rule it out as a threat. Instead, he thinks Apple won't bother to follow where others have been – it's more likely to take things one step further.

One possibility is the evolution towards becoming some sort of pseudo-consumer bank.

Would what is essentially a hardware company step so far from its comfort zone?

"I think it's extremely possible," says Jackson. "Wind the clock back 10, 12 years or so – what did Apple know about the music business?"

And any move towards consumer banking would be received with joyous adulation by the hordes of Apple acolytes around the world.

Earlier this year, market research firm KAE found that one in 10 people in Britain and United States would consider banking with Apple. When you restrict that to the converts – those who are already Apple customers – the proportion leaps to 43 per cent.

Those mind-boggling results say far more about the level of brand power and trust that Apple has developed than it does about any banking intentions.

But as KAE chief commercial officer Lee Powney noted, the results show the brand could fit in all kinds of areas where it was previously thought it could not travel.

"This makes it a truly dangerous animal to a startling array of sectors."

Although iBank is still a pretty big stretch of the imagination, Powney hit the nail on the head.

As NFC develops, it will inevitably be the catalyst for financial products prefaced by a lowercase "i".

The stars are aligning oceans away, over Cupertino, California. But the digital age moves fast, and it makes no distinction for geographical boundaries.

The Dominion Post