The next frontier for Apple Pay, the payment app from Apple Inc. (NASDAQ: AAPL), is apparently regulation.
Apple could find itself under the governance of the Consumer Financial Protection Bureau (CFPB), Adam Levitin, a professor at Georgetown Law School, predicted in his blog. Levitin’s theory is that Apple has made itself into a financial service provider by offering a payment app that puts it under CFPB authority. Among other things, the bureau is charged with regulating credit cards.
Interestingly enough, some of Apple’s competitors, such as PayPal Holdings Inc. (NASDAQ: PYPL), which owns Venmo, would not be under the bureau’s jurisdiction because they hold money in accounts, Levitin told The Christian Science Monitor. Instead, those organizations could be regulated like banks because they hold money in accounts; Apple Pay, on the other hand, simply facilitates payments.
That means PayPal and services like Google Inc.’s (NASDAQ: GOOG) Google Wallet could fall under the Federal Deposit Insurance Corporation (FDIC), the U.S. Department of the Treasury’s Office of Thrift Supervision or the Federal Reserve System, all of which regulate banks. One has to wonder how that will work, especially since companies like Google are not banks; Google is primarily a data processing organization.
Interestingly enough, the CFPB is currently taking no action on Apple Pay. Instead, the bureau is monitoring the service to see what happens. Since the bureau’s main role is consumer protection, it may take no real action unless there are consumer complaints.
Apple Pay Coming to China
Apple is rushing to get Apple Pay rolled out in China; currently the service is only available in the United States and the United Kingdom, The Street reported. Apple wants to get its service up and running in the People’s Republic because of the widespread acceptance of competitors like Alibaba Holdings’ (NYSE: BABA) Alipay and Tencent Holdings’ (OTC: TCFTZF) WeChat in that nation.
The Chinese market could be huge for Apple Pay because credit cards are not widely accepted in the Middle Kingdom. Instead, people use cash or mobile wallets instead. Many Chinese have gone directly from paying everything with cash to using mobile pay. Traditional bank accounts and checks are not as widely accepted in China as in the United States either.
Apple Pay is something of a success in the United Kingdom; around 40% of Britons with access to an Apple Pay compatible device have used the service, NCFWorld reported. A survey by eDigitalResearch found that 51% of the British people that have used Apple Pay are extremely satisfied with it. That’s not bad for a service that was only introduced in England in July.
Apple Could Have an Apple Pay Fraud Problem on Its Hands
Apple Pay might be too popular with another group, fraudsters, The Wall Street Journal reported. Around six percent of the transactions on Apple Pay appear to be fraudulent payments, expert Cherian Abraham alleged in a blog post. That indicates there might be some security problems with Apple Pay.
Abraham noted that some banks were having a hard time telling real transactions from scams. He also believes that the fraud could be the work of sophisticated organized crime groups, which could create problems for Apple Pay in the future.
Security is one reason why major American retailers such as Walmart Stores Inc. (NYSE: WMT), Kroger (NYSE: KR) and Target Corp. (NYSE: TGT) have refused to accept Apple Pay in their stores. Abraham’s concerns could delay its further use.
How Apple Pay Makes Money
Despite the fraud, Apple is undoubtedly making money off of Apple Pay; it is receiving .15% of every transaction made through the service in fees, The Journal reported. That translates to 1.5¢ for every $100 spent through Apple Pay, which could quickly add up to serious money. For example, Apple would collect around $1.50 for every $1,000 spent and so on.
If its popularity keeps growing, that could give Apple a lot of float and make it into even more of a cash cow. Therefore it is easy to see why companies like Google and Samsung are anxious to imitate Apple Pay. Google’s Android Pay recently appeared.
Samsung Pay Is Coming
Samsung’s answer to Apple Pay, Samsung (OTC: SSNLF) Pay, has been successfully rolled out in South Korea, Slash Gear reported. Customers made around $30 million in total payments through the app in the first month it was available. The money was generated by just 1.5 million transactions, so the volume of money earned could be huge.
There is no word on when or if Samsung Pay will be coming to America. It might premier when the Galaxy Note 5 and Galaxy S6 edge+ phones are released. Samsung has delayed the service’s premier, possibly because of security concerns.
What Apple Needs to Do with Apple Pay Next
It looks as if Apple Pay is off to a good start, but it still has a long way to go to win widespread acceptance beyond the world of Apple zombies. A few things that Apple will need to do to make Apple Pay a more dominant solution include:
- Allowing people to access PayPal through Apple Pay. This would enable people to pay with Venmo and their PayPal accounts on Apple Pay. It would also enable people that lack bank accounts to use Apple Pay and small merchants that rely on PayPal as their bank to use Apple Pay. People could also access PayPal lines of credit through Apple Pay.
- Creating an Apple Pay for business. Such an app could become the American Express card of the 21st century, particularly if it could be integrated with corporate expense accounts. Many companies give their employees special credit cards called p-cards, which they can use to process business transactions. One way to do this would be to form an alliance with the privately held Square Inc. or PayPal’s Braintree subsidiary, which controls Venmo.
- Finding a way to get Apple Pay accepted on Amazon.com. Amazon is the world’s largest online marketplace; currently, people cannot use Apple Pay to make purchases on it or to access money in their Amazon accounts through Apple Pay. This could greatly increase Apple Pay’s use in the United States, where Amazon owns the online retail market.
- Offering Apple Pay gift cards or pre-loadable Apple Pay. Gift cards are now big business as anybody that walks into a supermarket or dollar store can see. If Apple could find some way to allow people to load money onto others’ Apple Pay like a gift card or for people to purchase Apple Pay time with cash, it could have a huge moneymaker on its hands. One way to do this would be to give allow PayPal access because PayPal now owns the money transfer service Xoom.
- Finding a way to integrate Apple Pay with ATM machines. No matter how versatile Apple Pay is, cash will be here for some time to come. If Apple could figure out a way for users to get cash from ATMs, it could have yet another stream of revenue on its hands.
One thing is for certain: Apple Pay is big business and will be a huge moneymaker for Apple. If Apple Pay could be integrated with services like Venmo and possibly Square, it could become a real game changer in the world of finance.
Disclosure: your highly intelligent and incredibly handsome blogger owns shares of PayPal Holdings Inc and Bank of America.