The launch of Apple Pay has the payments world speculating about the future of Softcard (the wallet formerly known as ISIS), Google Wallet, and PayPal, but the most direct threat may not actually be to these competitors. Instead, Apple Pay will take on the established mobile wallets offered by closed-loop issuers. So the companies that have led the way in mobile payments—players like Starbucks Coffee Co., Dunkin’ Brands, and McDonalds—are the ones who will really need to spend time evaluating their strategies and the head start they have on Apple Pay.
As of now, it seems as if Apple Pay will bring one card to the top of the mobile payment application automatically. For many iPhone users, that card is likely to be one on file with iTunes. What this does is push the merchant’s app—and prepaid card—to the side. That potentially has a variety of consequences for Starbucks, Dunkin’, and other app providers.
The benefits of offering a closed-loop payment type, especially one that loads directly from a customer’s bank account, include reduced payments cost, increased customer loyalty, and the ability to gather data on regular customers. Apple Pay could potentially move those customers back to higher-cost payment types, namely open-loop credit cards. In addition, the benefits of customer information and the ability to offer loyalty programs disappear.
So, what should companies like Dunkin’, Starbucks, and Tim Horton’s do? Here is an outline for a battle plan:
1. They should take this opportunity to send out a friendly reminder of their app to all of their members. The time is right for a quick, small offer to say that the app is there and has benefits to its users.
2. The mobile managers should review their apps in comparison with what Apple Pay has to offer and figure out what benefits to highlight. As of now, there is not much in the way of perks for using Apple Pay, but that may change. Now is the time for closed-loop app providers to cement the relationship with their current customers. They should also think about how they might upgrade the app to stay one step ahead of the game.
3. Third, closed-loop app providers should get ahold of a new iPhone and see how their app comes across in the new operating environment. They should look at what work the user needs to do to access the app, consider how to advise users to adjust settings, and think about how the design of their app makes it stand out in the new environment.
These are the first steps to keeping a company’s mobile app at the top of the mobile wallet. The mobile managers have a head start of about six to nine months as Apple works to sell iPhone 6 and as merchants adopt contactless payments. That is not a lot of time, but it is a chance to shore up the defense.
The competitive threat has become real for many closed-loop issuers. Perhaps even more so than the banks, they need to begin strategizing how they will maintain relevance in the brave new world of mobile payments.
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