Case Study

1)Apple Pay would not be a huge success with consumers as Itunes at least in the first few
years of operation because of the following barriers to adoption

***Issuess from product offering are those of the whole digital payment industry
- Convenience comparison: the time differences to pay with Apple Pay and traditional credit
cards are not significant enough to encourage consumers switch their payment methods
despite low switching costs
- Lack of hardware compatibility: Apple Pay can only be used on Iphone 6 or 6 Plus (only 29%
of all Iphone users) while Google Wallet can be used by both Android and Iphone devices so
mass adoption of Apple Pay was questionable
- Software failure: A software bug can affect the running of the payment gateway or any other
problem with the installed software
- High dependence on the device: If users lose their phones or the devices run out of battery,
payment could not be made
- Customer education issue: although highly potential, mobile payment was still at infancy and
consumers need time to be educated and adjust their behaviour
***Issues from external forces are mainly rooted from Apple Pay’s business model (Exhibit 1)
- Merchants- lack acceptance: (1) Current network of Apple Pay was only less than 10% of 7-9
million retail establishments in US; (2) Retailer infrastructure may not support NFC system of
Apple Pay (3) Merchants need to incur massive training cost for staff and upgrading cost for
system ($300-$500 per terminal for upgrading POS); (4) Exclusive contract with competitors
such as MCX blocked retailer’s partnership with Apple Pay; (5) Some merchants with their own
payment system (such as Starbucks) do not want to adopt Apple Pay
- Financial institutions-Time-consuming process for partnership: the nature of Apple Pay’s
business model is to collect fee only from banks which made Apple negotiate price and contract
with every single bank and hence, slows down the network expansion
- Aggressive Competitors: Intense competition in a small growing market: Google Wallet, MCX,
Rite Aid using multiple ways to hinder Apple including exclusive contract with merchants as
mentioned. Emerging start-ups and other tech firms are threatening to disrupt the industry
which does not require intensive capital or labour expenditure
2)Apple’s motivation in launching Apple Pay:
- Financial perspective (1) Exploring new sources of revenue: while growth rate of hardware
was becoming flat, payment industry offers robust potential like payment industry (huge
business with $12 billion for credit and debit per day, CAGR of mobile payments 22%); (2) Cost
efficiency thanks to vertically integrated value chain (to payment steps)
- Strategic perspective: (1) Product differentiation to counter with intense competition: Apple
is operating in a tech-driven industry so it is imperative to enhance innovation to stay ahead of
the game. Iphone is now regarded as a single stop for all services (2) Synergies with current
products: Strong product portfolio from Iphone, Ipad, Itunes, App store, ... creates ecosystem
to integrate all services within one device -> innovate customer product experience and boost
brand loyalty
- Operational Perspective- (1) Leveraging current resources: Huge customer base as a solid
leader in phone sales in US and attractive brand for digital tech-savvy young consumers;
Premium brand image bolsters customer trust in payment services; Technology and human
capital for developing app and digital products; (2) Control over system: to reduce bugs, ensure
customer safety
1
Exhibit 1: Porter’s 5 Forces of Digital Payment Industry
Consumers
5
New
Suppliers
entrants
3 2
4 4
Substitutes Competition
Reluctant-to-change Consumers: Consumers strike the strongest power- Low switching cost if
changing payment provider- generous incentive of competitors encourage consumer trying
new payment service; traditional and new payment methods provide multiple choices
Intense Competition: Multiple choices available in the market with no-so-different features.
Start-ups and retailers are developing user-friendly platforms to attract new customer.
Attractive Substitutes: Traditional major players such as financial institutions and credit card
companies offering convenient payment methods and huge incentive to maintain market
share
New entrants: Medium industry barriers: strong financial regulations but not require intensive
capital investment. Tech companies and start-ups are potential new entrants
Suppliers: Low power

Case Study

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case Study

Uploaded by

Copyright:

Available Formats

1)Apple Pay would not be a huge success with consumers as Itunes at least in the first few

years of operation because of the following barriers to adoption

You might also like