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Apple Pay

Essay by Shruti Sharma  •  April 11, 2019  •  Coursework  •  1,441 Words (6 Pages)  •  16 Views

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  1. The different payment methods could be grouped into three categories i.e., cash payments which accounted for 25%, transactions made by cards were about 46% while the rest accounted for 14%. Below is the comparison against Apple pay method:
  1. Cash – Cash was accepted more widely than other payment methods since it has been a traditional, much easier transaction. There were no costs involved with this payment method for the merchants unlike for Apple Pay they had to put up POS machines which incurred operating costs. However, the probability of fraud with cash transactions is more while Apple Pay is very secure and also transaction time through Apple Pay is lesser than a cash transaction.
  2. Cards (Debit/Credit) – Credit and Debit cards are most widely used as they are faster and safer than cash transactions, but it includes security threats, for example if the card is stolen, it can be misused as credit cards don’t require a pin for a transaction to take place. In case of Apple pay, transaction is completed through biometric authentication and encrypted through tokenization process which makes it more secure. Also, if one forgets their wallet, Apple pay can be a savior.
  3. Electronic Direct/ ACH – These transactions account to be around 15% as it is widely used for online bill payments. It requires account details for the transaction to occur which is more time consuming than an Apple Pay transaction. The threat involved with ACH is high due to information leak while with Apple Pay, the bank information is not shared with the merchant.
  4. Others – The other payment methods can be paper payments for example cheques, which require at least a day’s processing time for the transaction to complete while Apple Pay is instantaneous.

 Revenue Model for Apple Pay:

Revenue

Costs

Fee from its Bank Partners

  • Credit Card transaction (15 basis points)
  • Debit Card Transaction (half penny)
  • Acquisition costs of partnering up with merchants, banks and payment networks
  • App development and other administrative costs.

Apple Pay’s value Proposition is what enables the business model. Apple Pay brings seamless and secure payment solution for its consumers which results in reduced fraud costs for the card issuing banks. This factor attracts payment networks to partner up with Apple Pay for which a small transaction fee is permissible. However, on the other side, the merchants have to incur equipment costs and also the customer base is restricted to apple phone users only.

Apple Pays business model will probably not be a big money maker as all they want to focus is on a secure and safe future. They want their customers to realize that they can handle internet operations securely and hence keep up with their faith on apple products.

  1. The major stakeholders in Apple Pay are:
  1. Banks – Apple Pay interacted and worked with banks accounting for around 83% of credit transaction volume. The benefits that Apple Pay offered to the Banks were increased consumer experience and m-commerce transactions as it would be easier for the consumers to use their bank credit/debit cards. The major advantage was the superior security which Apple Pay offered through biometric authentication and encryption through tokenization which would result in reduced fraud cases thereby reducing the damage costs that the bank has to incur. However, with this advantage there was a fee which the bank had to pay according to credit or debit transactions.
  2. Payment Networks – The payment networks were American Express, MasterCard and Visa which meant only open systems were involved and not the closed systems. These payment networks enjoyed the transaction volumes through Apple Pay.
  3. Merchants – Apple Pay segregated their merchants into three segments, i.e., the top 100 merchants which conducted major transactions by value, the small to medium sized enterprises (SME’s) and small market vendors including small merchants and farmers. The Merchants could offer Apple Pay through two ways, one through the website or app and other through a POS machine. The value for the merchants was in providing simple and faster payment environment for consumers (one-tap) along with a secure payment as consumer data was not stored preventing misuse. However, the disadvantage which came along with this was setting up the POS terminals and website developments which incurred operating costs.
  4. Consumers – Consumers were the apple phone owners and the advantage for them was a faster and simple transaction where they had to input their details only once while setting up Apple Pay along with the assurance of their data not getting leaked through Apple Pay’s authentication and encryption system. However, at places, Apple Pay transactions took time due to its shortcomings, for which consumers might have to face inconvenience.

  1. Apple recognized the pain point of the current transaction process where customers had to fill repetitive forms about their credit/debit card details for a complete purchase on websites or applications. To eradicate this feature, it introduced Apple Pay where in the customer could use their existing card stored in iTunes or could register a new card for which only the CVV would be required every time for a complete purchase. This would solve the above problem and help Apple to target the growing m-commerce market.

The other feature which Apple wanted to work on was the security in payments to reduce frauds. They wanted to eliminate the risk of private data being leaked which they did through their enhanced security feature. Here, the payment was complete once the customer entered a pass code or used fingerprint which was then encrypted through the tokenization process, where a one-time code and a device specific token was used to perform transaction unlike the traditional method where the customer’s card data was shared with the merchant driving data privacy breaches to occur. Apple Pay had a solution to the iPhone getting stolen or lost, where in the token would be generated remotely and would be linked to the same credit card, removing the hassle to cancel and issue a new card.

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