Apple is like a gracious dinner party host who makes everything so comfortable and inviting that the guests never want to leave.
That is a useful framework to view reports that Apple is talking with banks about creating a service that would let people send money to each other to split a dinner check or pay the plumber, according to the Wall Street Journal and other publications. Person-to-person payments aren’t in widespread use yet in the U.S., but Apple has a knack for mainstreaming habits that once were fringe.
Strategically for Apple, adding person-to-person payments to its collection of company services is another way to keep customers in a long-lasting bear hug with the world’s most valuable company.
Steve Jobs’s favorite word was “magical,” and Apple’s particular brand of fairy dust is taking to the masses something that once seemed niche. Apple wasn’t the first to seize on the idea of chopping up records into digital music MP3s, but they were the first to get the music industry comfortable with the idea and the first to make music downloads easy to use and affordable for most people. Apple’s introduction of iMessage helped make text messaging easy and palatable for normals -- that is, for the non-technologists.
Now those Apple services make the company devices hard to ditch. Sure, that cool Samsung phone seems appealing, but then you think about how cozy you’ve become with iTunes, iMessage and Photos. How can you leave that all behind?
Tim Cook clearly sees payments as the next crucial puzzle piece in Apple’s collection of services. The company hasn’t landed on the right formula yet with Apple Pay, which lets people pay for purchases with an iPhone or Apple Watch. There aren’t quite enough merchants yet that accept Apple Pay to make it easy to leave your credit cards at home. Apple Pay has accounted for just 1 percent of U.S. retail transactions, according to researcher Aite Group.
Cook recently said the number of transactions by Apple Pay was increasing by at least 10 percent month after month. Next year, Starbucks will start accepting Apple Pay, a move that should nudge many more iPhone users to try Apple Pay for their morning coffee.
Peer-to-peer payments likewise need a huge pool of users to make it mainstream. You can’t pay a baby sitter if she doesn't already use a digital payments service. But Cook may only need to wait for natural population progression.
Ask someone younger than 30 about Venmo – a startup that PayPal smartly purchased -- and their eyes will light up. After users tie their Venmo app to a bank account or credit card, they can use the app to pay a friend back for a movie ticket, the rent or do other niggling tasks typically done with cash or checks. Venmo feels like, well, magic. Just 5 percent of U.S. survey respondents said they or someone in their household used Venmo to pay another person in 2014, according to Aite Group. The use rate was 10 percent among millennials, the survey found.
The biggest challenge for Apple is that other companies with a similarly big base of users also want to get in on the game. Facebook's Messenger service lets people send money to friends within an app that has 700 million monthly users. Google Wallet enables digital payments by email. Startups like Snapchat and Square have peer-to-peer payments. Banks are getting in on the act, too. (All this seems hopelessly quaint to consumers in Asia, where digital payments are easy and widely used inside of popular messaging services like China’s WeChat and Line in Japan.)
Even with all the competition, Apple is the likeliest entrant to sell the masses on replacing their wallets with apps. The closer Apple gets to that reality, the closer the company gets to locking us in its happy home forever.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Shira Ovide in New York at firstname.lastname@example.org
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