It was not so long ago that the only real options for making payments were cash or cheques and then plastic credit or debit cards.
While these were all workable solutions in the world of traditional retail and services, they were next to useless as retail moved to e-tail and digital goods and services came along to rival physical ones. Rapid innovation was required to allow secure transactions to take place over the internet (which was anything but secure).
The earliest pioneers of what is now referred to as fintech were PayPal and various options that allowed people to pay with their mobile phone bills. PayPal was mainly for peer-to-peer transactions, meaning people only needed to exchange email addresses.
The alternative was sending bank card details in a combination of unencrypted email and text messages so that if a bad actor intercepted part of the card details, they would not have sufficient data to process a payment.
Even text messaging was limited to one hundred and sixty characters. The idea of using phones (rather than the phone bill credit) to process payments was a dim and distant aspiration.
The infrastructure and technology were not in place to support an innovative tech company like Zagme that had planned on delivering text-based promotions in shopping centers in the UK despite having major retailers signed up to the scheme.
The iPhone changed everything
It was not until Apple introduced the iPhone in 2007 that mobile technology and usage, as we recognize it today, became more than a tech pipe dream. A touch screen replaced the clunky keyboard of the relatively sophisticated Blackberry and Vodaphone devices, and Apple’s intuitive systems became the gold standards of on-the-go communication.
However, payments were still in the hands of financial institutions, and most transactions were still made using cash or plastic cards. PayPal was getting more traction, but most people would have seen it as a way to pay on eBay or to send money to family and friends.
Apple moved into the financial services sector as late as October 2014 with the introduction of Apple Pay, their mobile payment service. They had been working on the idea for years, having partnered with Visa, Mastercard, and American Express.
The three companies had been independently innovating with single-use digital tokens. Apple’s brand power, hardware dominance, and software meant that consumers were introduced to this new way to pay with the reassurance of reliable names behind a revolutionary means to transact.
Features built into the phone’s operating system
This new ‘e-wallet’ was part and parcel of any new iPhone, and many people did not understand what it was or how to use it. It was just something that was there, very much in the same way crash detection now comes with the phones and their software.
The whole concept of contactless payment using a plastic card was still relatively new, and paying with one’s phone remained alien to most people other than the eponymous ‘early adopters’.
However, in under ten years, Apple Pay has become a go-to payment choice for millions worldwide and is particularly popular in the UK. It is accepted at 99 percent of UK retailers, and many users do not differentiate between using Apple Pay (the whole service) and using the digital version of their bank card on their phone.
Many people used contactless payments for physical goods for the first time during the COVID-19 pandemic when cash became less acceptable and contactless the norm. Unlike plastic cards, there was no transaction limit on Apple Pay purchases, and consumers became accustomed to this payment method.
By September 2023, Apple Pay accounted for 70% of all mobile payments in the UK compared to 29% and 28%, respectively, for PayPal and GooglePay.
Innovation and security are key to success
However, Apple Pay’s rapid growth is not only down to the acceptance of contactless payments and ease of e-wallet usage. People also enjoy the added security it affords them when making online purchases.
Rather than relying on their bank’s encryption, a digital wallet like Apple Pay offers an additional layer of security, usually requiring two-step authentication using biometric recognition technology. It is particularly popular where consumers move money around, like when they make secure payments at casinos that accept Apple Pay or buy high-ticket digital or physical products online.
Apple had a reputation for high-security standards and was less susceptible to malware and hacking even before Apple Pay was launched. This meant that the brand was inherently trusted by many consumers who now use it with confidence on and offline.
Apple Pay’s rapid growth can also be attributed to the company’s constant innovation and introduction of additional services for both merchants and buyers.
In July 2023, Apple announced that UK businesses could take contactless in-person payments through Tap to Pay on iPhone. This means that millions of merchants use their iPhones to securely accept contactless payments from Apple Pay (and other digital wallets) without needing any additional hardware or payment terminal.
This makes taking digital payments even more straightforward and is of particular interest to smaller and startup businesses.
NatWest and Revolut business customers were the first to benefit from this, but a host of other banks are coming on board, and it was also rolled out to all Apple Store locations in the UK.
What next?
It is possible that there will be other services available in the not-too-distant future.
Earlier this year, Apple Pay Later in the USA. It is a feature that can be added to the Apple wallet, allowing a purchase to be paid for in six equal payments (similar to Klarna and PayPal Buy Now Pay Later.
It is essentially an interest-free loan for purchases between $50 and $1,000 that is paid back over six weeks. However, to get it will require approval by the Financial Conduct Authority in the UK, meaning Apple Pay would have banking regulatory loopholes to jump through.
