How Apple Pay is Encroaching on Traditional Finance's Territory

This transcript discusses how digital wallets like Apple Pay, Google Pay and PayPal have become more popular over the last several years, especially for online payments. It also explains how banks make money on debit and credit card purchases from interchange fees which merchants pay to the bank that issued your card when you shop with it. The transcript then goes on to explain how Apple Pay is encroaching on traditional finance's territory by taking a fee for every transaction and partnering with Goldman Sachs to create the Apple Card.

Introduction

• When you pay for your morning coffee.

• Digital wallets like Apple Pay, Google Pay and PayPal have become more popular over the last several years, especially for online payments.

How Banks Make Money

• Banks make money on debit and credit card purchases from interchange fees which merchants pay to the bank that issued your card when you shop with it.

• Those fees are usually 1 to 3% of your purchase when you shop with a credit card.

How Apple Pay Takes a Fee

• If you use Apple pay, the bank has to pay three quarters of a cent to Apple rather than pocketing 10 cents on the $5 transaction.

• The bank would instead keep just over nine cents on one small transaction that doesn't seem like much but it adds up.

• Initially, banks agreed to pay a fee for every transaction because they didn't want to be cut out completely by not playing ball with Apple. But now they're losing name recognition as well as money.

Apple's Ambitions

• Apple Pay isn't the end of Apple's ambitions with consumer payments.

• In 2019, it partnered with Goldman Sachs to create the Apple Card and in March, it began rolling out its own buy now pay later program.

• Now that consumers are getting used to engaging with Apple for their payments, it doesn't seem so far fetched that consumers would be interested in engaging with Apple on a deposit account or some other type of payment mechanism.

Banks' Response

• Banks have also introduced their own new tech in the last few years such as tap to pay cards with similar technology to your phone that makes it just as easy to check out in store.

• They're preparing to compete with Apple in online payments too with a digital wallet of their own called Pays. This is a very clear cut example where the banks have kind of had enough and are trying to figure out a very specific way to compete against Apple Pay and PayPal.

Banks vs Tech Companies in the Battle for Digital Wallets

This section discusses the competition between banks and tech companies in the digital wallet space.

The History of Failed Digital Wallets

• Banks have attempted to launch their own digital wallets before, but many have failed to gain traction.

• Chase Pay shut down its app in 2021 due to limitations with the iPhone.

• Many wallets have launched over the years, but they failed to compete with established payment methods like Apple Pay and PayPal.

The Future of Digital Wallets

• Tech companies are creating apps that go beyond payments.

• There will eventually be a small number of super apps that control consumer payments and financial services.

• Banks and tech companies are competing to become the dominant player in this space.