It might seem astonishing given the recent – and recurring -banking scandals but banks and credit cards are still more trusted than companies such as Amazon and Apple when it comes to managing our money.
So this week’s launch of Apple Pay, which will be available in 250,000 UK locations, means that it and its partners will have to do a great deal of convincing to prove that it provides a safe and secure method of payment. Apple Pay’s reception in the US has not been one of unalloyed joy either – nearly two-thirds of the country’s 98 biggest bricks and mortar retailers said that they had no plans to support the service this year.
So the embattled UK banking sector looks as if it still has a chance to emerge from its various scandals and attempt to rebuild its reputation. The fact that a recent study by Accenture found that only 1 in 10 respondents from the UK would consider banking with Apple shows that while we already hand over a huge amount of data to the tech giant we are not yet ready to hand over the management of our finances to them. Apple is likely aware of this fact and so the probability of Apple creating its own banking system in the near future is slim.
However, while it does not represent a direct threat, Apple Pay could ultimately contribute to banks’ decline through facilitating the progress of new, digital-only, challengers in the banking space by eroding the incumbents’ position as front of mind for the consumer and reducing the costs of set up.
As take up of Apple Pay increases it is liable to slowly erode customers’ loyalty to their banks. The service allows users to make transactions without considering where the money is coming from; particularly if they use their default credit card. Banks will therefore lose an important physical customer touch point, which keeps their brand front of mind and reinforces loyalty. Similarly, online payments will no longer be passed through the bank’s own authentication screens, losing a further part of the customer journey to Apple.
Apple has stressed that users of Apple Pay will continue to earn rewards and benefits on their credit cards but is conceivable that customers will gradually forget them or become less attached to them without the banks providing frequent triggers.
The onus is now on banks to have a watertight mobile banking strategy that goes beyond the hygiene factors of simple balance checks to something more valuable. In particular there is a wealth of customer data that banks could be taking advantage of to provide richer, more tailored rewards to customers using technology not dissimilar to those available from Apple.
For example Russia’s Alpha Bank last year introduced its Activity scheme that allows customers to connect their fitness tracking apps to their bank account. For every step that they take money is transferred to a special ‘Activiti’ account that offers an interest rate of 6%.
While Apple Pay might not be the instant game-changer many predict it might be, there is little doubt that the traditional banking system will need to sit up and take note, and develop their own offerings accordingly.