• Alex Reddish, Managing Director at Tribe Payments


• 22.12.2023 11:00 am
#openbanking #softpos

Apple’s recent product event unveiled the super-speedy M3 chip to the world, promising turbocharged processing speeds and transforming future app capabilities. But it’s Apple’s launch of iOS 17.1 and its new iPhone Wallet app – now integrated with the UK’s Open Banking framework – that’s set to change the way we pay. Combined with Apple’s Tap to Pay tech, which transforms an iPhone into a contactless POS terminal, is Apple on the verge of global payment domination? 

Not just yet perhaps, but Apple’s move into these three payment fronts offers a tantalizing glimpse of a world where the traditional friction points and blockages to merchant acceptance are eliminated.

Apple Wallet and Open Banking offer new merchant opportunities

Apple’s Open Banking integration in the UK is a game-changer for the tech giant and merchants, and it’s picked its market entry at a fortuitous time. As of mid-2023, 11% of UK consumers and 17% of small businesses are active users of Open Banking, with transaction numbers climbing every month, showing that people and businesses are becoming more comfortable with fast account-to-account (A2A) payments. 

Previously, Apple’s Wallet app could only store UK users’ credit card and debit cards to make tokenized online or in-store payments. But with iOS 17.1’s integration with the UK’s Open Banking API, Apple’s UK iPhone users can now view the balance of their current accounts, bank cards, and credit cards within Apple’s Wallet app and select which account they want to pay from. 

Tapping into Open Banking data means Apple can now give UK customers real-time balance checks on all their accounts, enabling them to make more informed purchasing decisions. For instance, consumers can choose not to add to existing credit card balances and instead opt to pay directly from their current account instead. The advent of A2A, pay-by-link, and QR code payments means this is becoming easier to do.

Already major UK banks like Barclays, HSBC, Lloyds, RBS, and neobanks like Starling and Monzo have jumped on board, with more banks sure to follow. Yes, some banks may be hesitant (concerned about disintermediation from their mobile apps), but with so many iPhone users, it will be hard to resist the lure of Apple Wallet – and the accompanying rise in transaction volumes and increased customer stickiness this could provide.

For merchants, Apple’s Open Banking integration means more choice in how they accept payments. Although merchants mostly appreciate the speed and security of card payments, interchange fee pricing remains a bone of contention. But there are also hidden costs to the merchant in accepting cards aside from interchange. When merchants accept a card transaction, they still have to wait 24 hours for the transaction to be settled, meaning a liquidity gap and an incomplete view of cash flow.

With Apple Wallet users having the option to make A2A payments and cut out cards altogether, merchants can benefit from higher conversion rates, reduced transaction costs, and real-time settlement. However, despite global A2A transaction value surpassing $525 billion in 2022, this does not mean impending doom for card schemes like Visa and Mastercard. Indeed, the card schemes have snapped up several Open Banking entities like Tink and Aiia to forge their paths in A2A. They recognize that A2A represents an opportunity to reimagine customer payment data whatever payment method it comes from. But Apple’s move certainly reinforces its intention of becoming a financial ecosystem in its own right. 

Apple and SoftPOS: Contactless acceptance made simple

Apple has done a fantastic job of delivering what consumers want in their digital wallets. Can it replicate that success with merchants? According to a recent Tribe survey, more than 80% of merchants want to improve their customer’s experience, but keeping costs down remains a key priority. This is where SoftPOS offers many competitive advantages in both acceptance convenience and cost-effectiveness.

Apple’s expansion into merchant payment acceptance, through its contactless Tap to Pay rollout, is set to supercharge SoftPOS deployment worldwide. SoftPOS transforms a smartphone into a payment terminal, enabling contactless card and digital wallet acceptance for businesses without the need for any additional hardware. 

According to Juniper Research, the number of merchants worldwide using SoftPOS to accept contactless payments on NFC smartphones will jump from six million in 2022 to 35 million by 2027 – and the rollout of Apple’s Tap to Pay will be one of the key drivers of this growth.

By utilizing the iPhone’s NFC chip and the supporting iOS app, merchants can accept a wide range of contactless credit or debit cards and digital wallets and enhance the checkout experience for their customers. Merchants can also use Tap to Pay on iPhone to read a customer’s payment card without making a charge, meaning they can add cards to a customer’s profile for future payments like monthly subscriptions. 

Where Tap to Pay is particularly useful for cash-heavy microbusinesses or sole traders like hairdressers or freelancers. There are many hidden costs of accepting cash, including storing it in business premises, insuring it, and transporting it to the bank. Cash can’t tell you what items customers like to browse before buying, nor can it tell you their average spend or where they like to spend it. In contrast, the amount of data that a merchant can gain from using a card versus cash is phenomenal in understanding what motivates a customer to spend and how they like to pay. With SoftPOS, those cash-heavy merchants can now start accepting card and digital wallet payments with just their iPhone, boost their revenues, and gain new insights into their customers.

Will cash disappear? No. However, as the decline of cash continues, I believe that the plastic card will die before cash. Tokenization transforms the cardholder’s 16-digit card number into a secure, virtual 8-digit token stored in the consumer’s smartphone. An added security layer is that every transaction made generates its unique token that can’t be copied or cloned. More payments will become tokenized and managed through digital wallets, meaning there’s no need for a plastic card anymore.

But will SoftPOS like Tap to Pay mean the end of POS terminal hardware? Undoubtedly, SoftPOS will take more market share and mean less reliance on physical infrastructure. Merchants, especially smaller or micro-merchants, don’t want the hassle of hardware that’s time-consuming to install, expensive to maintain, and gnarly to upgrade every time a new payment method or industry standard emerges – like PCI DSS 4.0, released in March 2022 with 64 new requirements to comply with. Many static POS terminals are no longer able to incorporate these new updates and face obsoletion.

In contrast, SoftPOS solutions like Tap to Pay enable untethered payment acceptance, available wherever the merchant takes their iPhone, with remote updates delivered over the air. But there’s no need for merchants to rip out their dedicated POS terminals and throw them in the skip – SoftPOS can complement existing infrastructure and offer additional acceptance points on the move.

Why merchant acquirers need to support SoftPOS

SoftPOS offers more opportunities for acquirers too, especially when it’s integrated with risk monitoring, reporting, inventory, and invoicing management to generate even more benefits for merchants. This is where acquiring banks can excel in offering seamless and hyper-personalized consumer payment services. But to do that, they need to overcome their reliance on legacy infrastructure with limited functionality. 

Acquiring banks will need to provide a single platform that supports all channels and transaction types, allowing merchants to bring together data and insight from every customer touchpoint. Tribe’s modular technology and API-driven processing platform enable banks to make just one integration to access global connectivity, while merchants can gain access to intuitive multi-channel payment experiences, including Open Banking and SoftPOS capabilities. 

Tribe’s POS solution is built using fully configurable back-end software, simplifying in-person payments for large retail chains and mobile and SoftPOS payments for micro businesses alike. 

What’s clear is that no matter what payment method is used, data’s real value comes from being able to anticipate customer behavior and create hyper-personalized experiences that consumers demand. Apple’s smart data analytics capabilities mean it’s now in a position to move beyond the limitations of traditional credit data, enhance financial behavioral data, and conjure even more dazzling services that grab the attention of consumers. 

Perhaps this means Apple will start looking at the potential of Central Bank Digital Currencies (CBDCs), a digital currency issued by a country’s central bank. These CBDCs will need a vehicle of storage and a digital wallet to interface with. Apple Wallet could provide a ready-made home, with instant contactless and Open Banking functionalities to leverage.

Apple’s expansion into payments is a perfect example of how it’s using data to deliver smooth and seamless omnichannel customer experiences. It’s now up to banks to pick up the gauntlet and deliver the dynamic digital payment services that merchants are craving.