November 27, 2015
With an existing presence in the US and the UK, Apple Pay launched its service in Canada on November 17 and has been available for American Express cardholders for a little more than a week already.
Surprisingly, major Canadian banks said little or nothing about Apple Pay support prior to the launch, which could mean that Apple Inc. is paving its way to the market through the network owners rather than card issuers. Canadian banks are being cautious with Apple Pay since the fraud incidents and could require Apple Pay to embed secondary verification such as PIN before the cards can be used by customers. Apple Corp., known for being the evangelist of a seamless experience with no extra clicks may object to the requirement as it can complicate the payments process. Any secondary verification can also possibly increase the cost of providing a service for the banks.
With American Express backing Apple, two other major players in the market – Visa and MasterCard – are still having second thoughts. Visa has its Visa Digital Enablement program to simplify mobile commerce for payment systems. Moreover, earlier this year, the company partnered with Google and banks across the globe to offer new mobile payments services. Given that Google has Android Pay, Visa’s decision on Apple Pay may be significantly influenced. As stated by The Globe and Mail, MasterCard was reportedly willing to agree to Apple’s terms and shared with Canadian media that the company is focused on having MasterCard cards on all devices, working in partnership with all platform providers.
The partnership with American Express does not seem to be the best arrangement for Apple Pay either as AmEx is the smallest players among Visa and MasterCard, having 70 million cards issued vs. 4 million from AmEx. It is not surprising AmEx was keen to partner with Apple Pay for a soft launch as the card issuer had a significant issue maintaining and expanding its market share, especially after it did not renew the contract with Costco Wholesale Ltd. for the next period, and lost to Citi the opportunity to earn $100 million annually from Costco accounts starting 2016.
According to Canadian The Globe and Mail, some Canadian banks expressed concerns about whether the tech giant would push their own brands into a lesser role with consumers while others are keener to form a partnership.
Since it has already been over a week since Apple Pay came to Canada through AmEx cards, let's see what’s been happening and what the first reactions of Canadians are.
Twitter has been glowing with disturbing signs for other issuers and networks. This has probably been foreseen by Apple Inc. when they chose AmEx as a gateway. The strategic choice of a smaller player and disappointment of the customer base of all major players could potentially lead issuers to come to Apple Inc. themselves.
Clearly, RBC, TD Bank, Scotiabank, BMO and CIBC with Visa and MasterCard have been seeing a lot of requests on Twitter addressing to customers’ frustration with the inability to use Apple Pay. Some of the customers have been considering switching the card and the bank because of the unavailability of Apple Pay.
TD Bank may very well get its act together very soon along with other major players after red flags all over the social media indicating clear customer demand for the service.
A wall of questions is being raised for the major issuers regarding Apple Pay. As Apple Pay rolls out, frustration with the financial institutions not supporting the services is growing. Until the moment they start supporting Apple Pay, AmEx has a great opportunity to stay ahead of the game and, probably, strengthen its market position.
Prior to November 17, we had plenty of questions and doubts on the partnership choice and opportunities for Apple Pay in Canada. Time has demonstrated that this has most likely been a deliberate strategic choice and a cost-effective way for Apple Inc. to get other players seek for collaboration instead of spending resources and efforts to get them on board for the launch.
The tension is rising every day for all major banks, with unhappy clients threatening to change their banks and questioning banks’ ability to be up to date with trends.
As time goes by, TD Bank, RBC, BMO and CIBC will most likely come under fire if they don't introduce a viable alternative or enable Apple Pay on their Visa and MasterCard cards.
As a reminder, Apple Pay was launched in October 2014 and has since then been a controversial topic for discussions with different predictions on the future of the service. However, the service confidently expands its adoption both in the US and the UK, where it was launched in June 2015. Apple Pay worked with 70% of credit and debit cards in the UK including Halifax, Lloyds Bank and the Bank of Scotland; 250,000 locations in the UK have started accepting Apple Pay since July, including major merchants and Transport for London (TfL). Apple Pay already supports cards that represent around 90% of the credit card purchase volume in the US.