This is the fourth post in our series about Apple's Jan 25 Press Releases. Read our introduction, Part 1 on alternative App stores and Part 2 on alternative web engines This time, we talk about Contactless Payments.

We've been paying by phone for a few years now, so what is this all about?

Yes. It has been around for a few years; paying by your phone or smartwatch is known as "Host Card Emulation" or HCE for short. Up to now, there's been a single HCE App on the iPhone - namely Apple Wallet. Android had a different approach - yes, they built Google Wallet, into which you put your cards, and it too is a HCE app, but the key difference is on Android, other apps can also offer this capability.

Why would other apps offer contactless payments - surely everyone uses Google Pay/Apple Pay?

That is somewhat true, but if you're an Android user, you have a choice. You can add your debit card added to your wallet and pay using it; but what if your bank is not on the Google Pay system? On Android at least, your bank has the option of shipping their own "Pay by MyBank" app. Up to now, this latter approach was not possible on iOS, but it is now opened up to developers in the EU on iOS 17.4

Choice is good. I want it.

Not so fast! There's a very elegant simplicity in payments as they are now. Most people we know who use Apple pay, are now using it everywhere. Double-press your button and pay.

With a choice, comes potential interaction issues.

Here are 2 scenarios:

  • You own a debit card issued by OTHERBANK, and they aren't supported by Apple Pay. You download their app, and in settings mark it as the default app for contactless. Great - now you pay everywhere with OTHERBANK and it works just as easily as Apple Wallet.
  • You own multiple cards, some of which are in Apple pay, and the others are issued by OTHERBANK. You can set a default payment app in settings, but what about when you want to use one card over another? That sounds like an extra step: Double-press the button, switch to a different app, then pay?

Frankly, we're not crazy about this.

Why would banks want to have their own payment app?

Well, proponents of separate HCE apps have always claimed that the bank is losing some of its branding power, and its connection to the customer. They say that each time you pay with Apple Pay, the user believes they are using Apple's handy mechanism over, say the actual bank. The argument here is that if they are using OTHERBANK's app, the user is consciously interacting with their bank.

With the growth of challenger banks, there's a fear, especially amongst established banks, that banking is becoming more of a utility, and users are less likely to be loyal to their bank. This of course, scares the established banks.

Will I be able to trust these apps? This is money we're talking about

Well, the apps will have to work with all of that existing payment infrastructure; this is known as the EMV spec. It is very secure. In addition, there will still be certification requirements put in place by Apple in order for you to be allowed to put your HCE app on the App store.

So, will we start to see our existing banking apps become HCE apps?

We'd doubt that. As it stands, getting your card supported on Apple Pay is not trivial. There's contracts, Non Disclosure Agreements, testing and certification. You might also need to get in line. So any bank with an established presence on Apple Pay took some effort to get there, is probably doing good transaction volumes on it and is happy.

We see a couple of reasons we'll see some HCE apps:

  • For those banks who cannot get on Apple pay for one reason or another. They may be too small in their market for example or deem the process too difficult, or find the agreements onerous or the charges too high. They may consider "rolling their own".
  • For those banks who see a way to earn more of the transaction fee. I'm guessing here, but I expect when you use Apple pay, there's some form of cost for licensing; At a certain scale, if you can shave some of the cost, it may be worth your while - Some banks may see this as an opportunity to regain some of their interaction with their customers and get a better cut of the transaction for themselves.
  • A streamlined, open banking experience? This one is a stretch but worth an explanation

Open Banking

Secretly, the EU really dislike how much of the world's transaction cut goes to two large US Corporations - Visa and Mastercard. In recent years, there's been a move to create "Open Banking", a protocol for direct bank to bank payments, which utilises the user's permission in order to effect a payment.

Its growth has been slow, but it may get there. We're seeing more and more mentions of it. Maybe, just maybe this would be a way to initiating a payment without using a Visa or Mastercard. Don't hold your breath though! Every terminal you have ever tapped on utilises the EMV standard, which is the protocol used in contactless payments.

Ironically, EMV stands for Europay, Mastercard, Visa who created the standard, but Europay was at some point subsumed into Mastercard. Perhaps EMV can be back ended onto Open banking, but that's beyond the scope of this post.

Our Opinion

We suspect that this move is something that regulators like, big business like, and users won't really notice or care for. If we were given the choice of "Put OTHERBANK card in Apple Wallet" and "User OTHERBANK App to pay using OTHERBANK card", we'd take the former first.

Then again, this is coming from someone who changed bank because their established bank was slow to provide Apple Pay.

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