Apple vs. Banks: The Digital-Wallet War, Explained | WSJ
3 min read
6 months ago
Published on Apr 23, 2024
This response is partially generated with the help of AI. It may contain inaccuracies.
Table of Contents
Step-by-Step Tutorial: Navigating the Digital-Wallet War Between Apple and Banks
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.