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Have banks made a fatal mistake with Apple Pay?

I was sitting the other day thinking about the good old days.

In the good old days, if something was big and challenging, banks would get together and create a co-operative to solve the problem. SWIFT, Visa and MasterCard were all bank created co-operatives.  Admittedly, times have changed and now Visa and MasterCard are private entities, but originally they were created to solve problems that a single bank could not tackle like making global payments and processing billions of card transactions.

Since the good old days, I wonder if banks have taken their eye off the ball.  A good example is Alipay, Yandex and PayPal.  As the internet took over, banks decided to ignore the need for online payments and let these startups take over.  Now the startups are more than upstarts, as they have taken a major chunk of online transaction processing.

Take PayPal’s latest exploits.  Last Monday 20th July, PayPal split from its mother ship eBay and rocketed rapidly to a $50 billion valuation. The last time PayPal was trading  publicly in 2002, just before eBay acquired the business, it was valued at $1.5 billion.  That’s some explosion of business, especially as the mother ship is worth less than its baby.  eBay was trading at just over $34 billion market cap as PayPal split.

It’s no wonder as PayPal has almost 170 million active users in over 200 markets trading in 57 currencies.


The thing is that banks should have been creating a collegiate version of PayPal for global online payments. The nearest you get to that is something like the domestic Dutch payments system iDEAL, created to lock out PayPal.  Meanwhile, Sweden has upstarts like Klarna solving the problem in an even better way, and one that doesn’t involve using cards.

Why didn’t the banks cooperate to create a global online payments system?

So now we have Apple Pay in the UK and USA, and banks have been slobbering to get in on the action

Apple Pay UK

I wouldn’t be surprised if, in a few years, every bank is somehow wrapped up in Apple’s wallet.  Lovely.

The thing is that Apple Pay achieves two things for Apple at the banks expense:

(a)    They own the customer mindshare or relationship if you prefer; and

(b)   They have the banks completely at their control.

If you don’t believe the latter point, then just look at how all the US banks have reduced their fees to ensure they are part of the wallet.  This means that Apple could demand further deep discounting in the future and, if they get this from one bank, then all the other banks will have to follow.

So here’s where my thinking goes out there to the old days.  If banks could solve insoluble issues in the 1970s by working together, how come they couldn’t work together in the 2010s to create a mobile wallet?

Why haven’t banks cooperated to create a global mobile payment system?

The answer is that banks don’t trust each other anymore.  However, because of this lack of trust, they’re giving the game to the upstarts.  Well done guys.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Graham

    Is PayByBank app from Zapp/ Vocalink addressing some of the trust issues? The banks access a common platform without direct interaction with other banks. The customers don’t need to worry about putting money into a wallet of a startup that they don’t really trust.
    the banks get the payment tech without losing their interaction with the customer. Win-win?

  • Chris, I don’t know if it’s as simple as they don’t trust each other. I think they are still trying to work together, but the goold old days of being able to take 10 years to achieve something without competition have gone. Visa and Mastercard consider PayPal a huge source of volume for them, 98% of PayPal payments end up on card rails with a bank or credit account behind them. PayPal sell online conversion to merchants.
    Pay By Bank App is a classic example. Zapp has been 6 months away for nearly 3 years. They’re nearly as bad as Ethereum, except their tongue isn’t planted in their cheek and there isn’t a git repo that looks quite promising full of open source code.
    The banks dither and fail to execute.
    I think they’re worse now than they’ve ever been, because of HOW they’ve reacted to the need for more compliance. With MORE paper, not more automation.
    Their competitors also execute faster. I’d love to see a chart that shows the Growth of Alibaba vs the growth of PayM transaction volumes.
    We can launch a standard for mobile as an industry but can we bollocks get anyone to use it. It’s exactly the same as we saw in the Telco space with video calling, payments and countless other standards they tried to win at.
    Which is a shame because ultimately the OTT players create a fragmentation. Skype callers can’t speak to Facetime and vice versa.
    We’ll see the same in payments soon enough.

  • Sven Korschinowski, KPMG

    agreed, in the C2B/P2P space, it will be really challenging for banks. In Germany, the banks will launch a ecommerce payment system (“domestic PayPal”). Interesting, if they can get some market from PayPal (they latter have 20% market share in Germany).
    The B2B space, however, it is more challenging. Indeed, you have folks such as CurrencyCloud offering faster and cheaper B2B cross-border payments. But, today, I see no challenger for MNC’s having payment runs with millions of payments to be processed in one hour, e.g. in the insurance sector.
    Tomorrow, however, there might be also a FinTech/Non-traditional Bank solution which is capable to provide the same service quality, trust, speed, price and… value-add.

  • Not only are the banks not cooperating, but the technology companies are not cooperating. Is apple pay supported on the largest selling phone operating system? Apple manages to exploit it’s monopoly on cool tech once again.

  • I remember in the 1990s being sent by a banking client to visit the early WorldPay. I told the bank that WorldPay would never get anywhere because it would be trivial for the bank to build the same system (a PC connected to the internet on one side and NatWest Streamline on the other). What a valuable lesson for a deputy junior assistant under-consultant to learn. Just because something is sensible and feasible and cost-effective and has potential does not mean that banks will do it.