Apple vs. Banks: The Digital-Wallet War, Explained | WSJ

Step-by-Step Tutorial: Navigating the Digital-Wallet War Between Apple and Banks

1. Understanding the Shift in Payment Preferences

   • Traditionally, most people prefer using physical payment methods like cash or cards for their morning coffee purchases.
   • However, digital wallets such as Apple Pay, Google Pay, and PayPal have gained popularity, especially for online transactions.

2. Recognizing the Impact of Apple Pay

   • Apple Pay was introduced in 2014 and is now activated on 78% of iPhones in the US.
   • It is the only digital wallet that banks agreed to pay a fee for every transaction, known as interchange fees.

3. Understanding Interchange Fees

   • Interchange fees are the fees paid by merchants to the bank that issued your card for each transaction.
   • Typically, these fees range from 1 to 3% of your purchase when using a credit card.

4. Comparing Transaction Fees

   • When using Apple Pay, the bank pays a smaller fee to Apple compared to traditional interchange fees, affecting their revenue per transaction.

5. Apple's Revenue from Apple Pay

   • Apple generated an estimated $782 million from Apple Pay in the previous year, showcasing the financial impact of digital wallets on traditional banking revenue.

6. Introduction of Apple Card and Buy Now, Pay Later Program

   • In 2019, Apple partnered with Goldman Sachs to create the Apple Card, expanding its payment services.
   • Apple also launched its own Buy Now, Pay Later program, Apple Financing LLC, taking on a role traditionally held by banks.

7. Banks' Response with New Technology

   • Banks have introduced tap-to-pay cards with similar technology to compete with digital wallets like Apple Pay and PayPal.
   • Seven major banks collaborated to create a new wallet called "Pays," aiming to offer a competitive alternative to Apple Pay and PayPal.

8. Consumer Adoption and Merchant Acceptance

   • The success of new bank-led digital wallets like Pays depends on consumer adoption and merchant acceptance.
   • Consumer behavior is shifting towards digital payment methods, emphasizing the importance of offering convenient and secure payment options.

9. The Future of Consumer Payments

   • The competition between traditional banks and tech companies in the digital payment space will continue.
   • The industry anticipates the emergence of a few dominant "super apps" that control consumer payments and financial services.

10. Conclusion

• Stay informed about the evolving landscape of digital payments and the competition between banks and tech companies.
• Consider exploring different digital wallet options based on convenience, security, and acceptance to adapt to the changing payment ecosystem.