Apple’s announcement of its upcoming launch of P-to-P capabilities was no surprise. But the details should come as a shock to many of the banks that have bent over backwards to support Apple Pay on Apple's strict terms.

The P-to-P function can draw funds from Apple Pay, but it doesn't require that the recipient be enrolled in Apple's mobile wallet. The funds can instead go onto a virtual Apple Pay Cash card (a prepaid account from Green Dot), a structure that may have significant implications for issuers both domestically and internationally if Apple chooses to expand the capability.

Slipping halo

At the launch of Apple Pay in October 2014, banks were tripping over each other for the brand association and marketing opportunities provided by Apple’s mobile wallet. The halo effect of Apple at the time was worth the 10-15 basis points that Apple charged for Apple Pay transactions. With over 1,800 FIs partnering with Apple in the U.S., and with competitive (and cheaper) offerings from Google and Samsung, whatever novelty factor Apple Pay once had has been diminished by the service becoming commonplace.

Apple CEO Tim Cook at WWDC 2017
Tim Cook, chief executive officer of Apple Inc., center left, speaks to attendees while holding an iPad Pro during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, U.S., on Monday, June 5, 2017. Bloomberg News

But while U.S. issuers are unlikely to break ties with Apple anytime soon, the market has not been as welcoming overseas. It launched in the U.K. without the support of Barclays, and in Canada with only the support of American Express (both situations have since improved for Apple).

Further evidence of banks increasing antipathy towards Apple recently occurred in Australia. With historically lower iOS handset penetration than the U.S. and a lesser cult following, Apple was faced with a collective of major issuers (Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank) attempting to fight back against Apple's control of the payment options on its devices. Ultimately the Australian Government intervened, with the Australian Competition and Consumer Commission (ACCC) ruling in March of this year that banks were not authorized to collectively bargain and boycott Apple Pay.

The diminishing adulation of Apple among issuers may well be precipitating Apple’s desire to cut out the middleman with its own branded virtual card, along with Apple’s well established tradition of owning an entire ecosystem rather than just a part of it.


While Apple Pay is the most commonly used mobile wallet at the point of sale, it's little to brag about. Recent research from First Annapolis highlights that just 8% of iPhone owners are regular (once per week or more) users of Apple Pay in store, so clearly its practice of working only with banks has its limits.

The Apple Pay Cash card is purely virtual, according to a source from Apple, and thus it cuts out the need to enroll with a bank account or even carry a separate wallet.

A P-to-P system tucked within iMessage may seem like little threat to banks, but there is precedent for P-to-P as a gateway drug to retail transactions. AliPay and WeChat wallets have exploded, reaching US$2.9 trillion in 2016. Both of these payment networks evolved from messaging platforms.

However, the U.S. has a very different payment ecosystem compared to China, and Apple is clearly late to the game.

This has not been a problem in the past with services such as iTunes that redefined the digital music landscape. However, Apple’s ability to innovate in payments is probably more restricted and it is entering a fiercely competitive marketplace for P-to-P transactions including major bank based initiatives and aggressive alternative players.

"The real challenge will be getting consumers to use the P-to-P service," said Michael Moeser, director of payments at Javelin. "When Apple Pay first came out it had very little competition, despite Google’s efforts. In contrast, Apple’s new P-to-P service will compete head-on with Venmo, Zelle, Square and others. Giving the enhanced functionality of a virtual debit card may not be enough to fuel widespread adoption."

It will be interesting to see how far Apple wants to go in the realm of payments. Does it become a bank or simply exist in the "frenemy" zone as PayPal has long done? Does it enter the point of sale hardware business by building Square-like features directly into its devices? Or does it recognize that payments are really very hard to do and quietly back away?

The success or failure of Apple’s P-to-P effort may be the deciding factor in determining whether Apple's devotees want to keep their money in an account tied only to their iPhones.

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