Major US banks join forces to counter Apple Pay

Wells Fargo, Bank of America, JPMorgan Chase and four other US banks are working on a new product that will allow shoppers to pay at merchants' online checkouts with a wallet that will be linked to their debit and credit cards.

FACTS

• The digital wallet will be managed by Early Warning Services LLC, the bank-owned company that operates the Zelle money transfer service. The wallet, which does not yet have a name, will operate separately from Zelle, EWS said.

• The app will support Visa and Mastercard at launch, with Discover and other card networks approached to determine their interest.

• Details of the customer experience have not yet been finalised, but there are said to be a few hassles such as the requirement to enter one's email address to log into the service.

• Upon payment, the merchant would ping EWS, which would connect to the consumer's bank to verify the card loaded on the wallet. Consumers would then choose which card to use or opt out.

• The new application is expected to be launched in the second half of the year.

CHALLENGES

• Countering the competition: Since the launch of its new financial products such as savings and fractional payments, Apple is increasingly seen as a threat by other banks. This seems to be a long time coming, given the growth of services such as Paypal and Apple Pay, which are now ranked as the most popular payment tools for consumers.

• Moving away from Zelle: The option of using Zelle has reportedly been dropped following accusations of scams and fraud on the peer-to-peer payment network. Senator Elizabeth Warren, a Democrat, called the peer-to-peer payment network "dangerous", claiming that Zelle users were defrauded of $500 million last year.

• Hypothetical success: It simply takes a long time for a new service to catch on. In particular, it takes a great customer experience (which has to be better than the competition, not just similar) and a compelling value proposition for merchants to create the two-way network effects in payments to achieve scale.

MARKET PERSPECTIVE

• The payment system is used by over 507 million users worldwide (Statista 2020 figures) and over 48% of iPhone users have access to it. In the US, Apple Pay accounts for no less than 90% of contactless payments.

• According to Bloomberg, between the beginning of 2020 and the end of 2022, the Platform Solutions division of Platform Solutions, which caters to the general public and includes the Apple Card business, will have accumulated losses that could amount to 4 billion dollars. The Apple Card could be responsible for $3 billion in losses for the bank. Goldman Sachs had the ambition to reach profitability with this division as early as 2022, but the objective has been pushed back to 2025.