Apple Pay to boost UK mobile commerce but Apple Music faces challenges

As rumoured two of the big announcements from Apple on the opening day of its developer conference concerned its entry into the music streaming market and the introduction of Apple Pay to the UK in July.

The Apple Pay move is significant not just for the UK mobile commerce industry but as a ramping statement from Apple. Competitors such as Google have dipped their toe in the mobile wallet water in the past without ever getting beyond their home markets, so expanding internationally just nine months after launch is an aggressive move that throws down the gauntlet to mobile wallet competitors. Also the UK is already much more geared towards contactless payments, with many such terminals already in place. This wasn’t the case in the US, which didn’t even start rolling out chip-and-pin until last year.

“Apple Pay has quickly become a big part of millions of users’ everyday shopping routines, providing a simpler, faster and more secure way to pay,” said Eddy Cue, Apple’s SVP of Internet Software and Services. “We’re thrilled to bring Apple Pay to the UK with support at launch from the most popular banks, an incredible roster of merchants and many of our users’ favourite apps.”

Apple listed a bunch of partners, summarised in this Banking Tech story, thus acknowledging this is primarily an ecosystem play. “Contactless payments are already widely embraced by millions of Visa cardholders across the country every day, so adding the simplicity and convenience of Apple Pay will catapult mobile payments into the mainstream,” said Jeremy Nicholds, Executive Director of Mobile at Visa Europe. “Whether on the high street, in a small shop or on the go within apps, Apple Pay offers a simple and secure way to pay. We are pleased to be among the first UK banks to offer this service to our customers,” said Ross McEwan, CEO of Royal Bank of Scotland. “We are proud to be one of the first retailers to introduce Apple Pay at our stores across the UK,” said Marc Bolland, CEO of Marks & Spencer. And so on.

Various commentators have also had their say. Anthony Duffy, director of retail banking in UK & Ireland at Fujitsu said “Apple Pay’s announcement that it will land in the UK this summer is exciting and to be welcomed. It is likely to act as a major stimulus in the development of electronic wallets in Britain. It will also provide Apple with a head start over rivals Android Pay and Samsung Pay, neither of which have announced plans yet to enter the UK market.”

“When the world’s biggest company wades into mobile payments, you know it’s going to be a game changer,” said Ernest Doku of uSwitch. “Apple has the brand power to bring the ethereal concept of a mobile wallet into the mainstream. Much like iTunes revolutionised music, Apple Pay could become the de facto standard in payments, and not just for small transactions. Sophisticated security features – fingerprints to authorise payments and encrypted ID numbers instead of credit and debit card details – should alleviate fears that paying by mobile isn’t secure.

“Much has been made of the fact that no credit or debit card data is stored on Apple servers, shared with merchants, or transmitted with payments. All this means details are less likely to be stolen and misused. In short, Apple Pay is actually a safer way to pay than using cards and cash in your wallet or purse.”

“Apple Pay is a clear example of where numbers count,” said Geoff Blaber, analyst at CCS Insight. Apple’s scale gives it an inherent advantage over rivals and it’s one of the few apps that really does unlock new potential when it is always available on your wrist. The company has done well to win support from London’s transportation system, as Apple Pay launches in UK, it offers a large installed base of users immediate benefit on a daily basis.”

Apple also previewed the latest release of its mobile operating system – iOS 9 – at the event, which includes support for loyalty programmes and store credit cards, and which evolves the Passbook app to become Wallet – combining the old digital ticket capabilities with all the new mobile wallet goodness. “We’re bringing our customers the most requested features with support for rewards and store-issued cards, and expanding how and where Apple Pay is accepted, which truly transforms the way people pay,” said Cue.

Apple faces quite a different market when it comes to Apple Music as, despite being a digital music pioneer with iTunes, it has been slow to jump on the music streaming bandwagon and Spotify especially has established itself as synonymous with that market. Inevitably Apple is claiming its alternative is “revolutionary”, having its own 24-hour live radio station, celebrity DJs and some degree of ‘social’ connection between artists and punters. Also typical of Apple is its stated aim to take the hassle out of having to think for yourself by having everything in one place.

“All the ways people love enjoying music come together in one app – a revolutionary streaming service, live worldwide radio and an exciting way for fans to connect with artists,” said Cue.
“Online music has become a complicated mess of apps, services and websites. Apple Music brings the best features together for an experience every music lover will appreciate,” said Jimmy Iovine, who came over to Apple as part of the Beats acquisition.

The pricing seems competitive: a three month free trial followed by $10 per month single user or a $15 per month family plan that allows up to six users, and it will be available globally by the end of this month. It looks like Spotify immediately identified this as the key threat and is reportedly looking to bring its own prices down in response.

“Apple transformed music with iTunes but as usage has shifted to streaming Apple has lost its place in the industry drivers seat,” said Blaber of CCS. “Apple Music is a crucial response, but faces established rivals in Spotify, Soundcloud and Pandora.”

“Apple Music is a complex mix of services including music streaming, live radio, music discovery and social interaction with artists. It’s too early to tell whether this is what users are waiting for but Apple’s installed base, the three month free subscription and family bundle are huge levers that Apple’s competitors will be wary of.”

The last major announcement of the day was News – a new app that replaces Newsstand and is an aggregator for digital newspapers and magazines that is considered equivalent to Flipboard. The key detail for publishers is that they get to keep all of the revenue from their own ads and 70% of the revenue if they get Apple to sell the ad spaces for them.

“News seamlessly delivers the articles you want to read in a beautiful and uncluttered format, while respecting your privacy, because Apple doesn’t share your personal data,” said Cue. “We already have nearly 20 publishers representing more than 50 titles joining us, including Condé Nast, ESPN, The New York Times, Hearst, Time Inc., CNN and Bloomberg.”

Apple’s spectacular success is founded on its unique ability to create business ecosystems. Compared to the perennial PC struggler of the 80s and 90s, today’s Apple was founded on the success of the iPod, which itself was built on Apple’s leadership in digital music via iTunes. The App Store is a key selling point for the iPhone and iPad and Apple knows it needs to keep creating compelling ecosystems to justify the enviable margins it makes on its hardware.

With Apple Pay it seems to be headed in the right direction. There are lots of partners on board from both the financial services and retails sectors and it benefits from Google’s relative failure in this space. The same is not true for music streaming, however, and many Apple customers who currently use Spotify may conclude it’s just too much hassle to switch. As it has shown with maps and social networking, Apple is not so effective at taking share in mature markets and it might need a few more USPs to make Apple Music take off.