Why Apple Pay won’t (and doesn’t need to) be a Venmo-killer

Apple revealed Monday that users of its iPhone devices can now pay their friends (or whoever) through a money transfer service that operates over the iMessage app. It’s obviously a competitor to Venmo, the popular peer-to-peer payments app, but a killer? Probably not, according to analysts in the space. Firstly, the value proposition is for users of Apple devices, and Venmo users are more diverse than that. Industry observers say people lose sight of the reality that the story of financial technology has a lot to do with creating customer-centric offerings -- and customers aren't all on Apple devices. Android took the majority (82 percent) of the market in the fourth quarter of 2016; Apple captured 18 percent. “It’s not the p-to-p that gets me so excited, it’s where they're enabling commerce that’s not happening today: web and app,” said David Sica, a principal at venture capital firm Nyca Partners. “Once you win that consumer it’s very easy to start building other types of payment functionalities. People aren't using PayPal proper as much as they're using Venmo, but Venmo doesn't have the offerings.” PayPal recently announced that it would soon open Venmo to businesses, so while it’s expanding its one functionality to others, Apple is improving its current value proposition for the customer and solving for real pain points, like the checkout process in mobile shopping experiences. (Shopping cart abandonment rate on mobile devices is about 78 percent -- that’s more than three out of every four sales that retailers lose because of friction at the point of sale.) Venmo may be the dominant force in p-to-p payments, but it’s not alone. Traditional banks are going after it too, worried (at least they should be) that Apple, Venmo, Square Cash or any of the messenger app-based payments offerings like Facebook Messenger, WhatsApp or WeChat Pay will “take a debit card that they spend $7 million a year to market and bury it in someone else’s wallet,” Sica said. The banks in the Zelle Network, the other “Venmo-killer,” processed just $55 billion in p-to-p transactions across more than 170 million transactions in 2016. “They're looking to steer you back to their app to send money, which is great, but it’s not a very customer centric approach,” Sica said. As part of the announcement, Apple also introduced its own digital debit card, Apple Pay Cash, which lets users receive money through the new p-to-p transaction and use it to make Apple Pay purchases wherever and however they're accepted. That offering could ostensibly be a gateway to mobile payments for younger customers who may not already own traditional credit and debit cards. But the heart of the actual peer-to-peer service is so similar to all the other wannabe Venmo-killers out there, said Zilvinas Bareisis, a senior analyst at Celent. The real question is which one will be best integrated into where the customer already is. “To some extent this is a user interface, user experience proposition,” he said. “A lot of these solutions are backed by card-to-card transfers -- you’re sending from one debit card to another. If you look at Facebook Messenger and messenger payment, its basically that service integrated into Messenger. With Venmo it’s that service integrated into that app; with Zelle it’s bank-to-bank, account-to-account transfers integrated within from a mobile banking app solution. The underlying service is very similar.” Despite being named one of the most innovative companies year after year, there’s been an ongoing discussion among the tech industry about how Apple has lost its innovation mojo, or that it’s in an innovation slump, or how innovation left with Steve Jobs. Now, Apple is saying it’s going to have its own service within its own operating system, integrated tightly into its own process solutions, like iMessage. It’s unlikely to divert people to other messenger apps to send money. “Folks don't want to download more apps,” Sica said. “App download is minimal, it’s hard to win that real estate now… There’s room for companies to offer more options. For some people that'll be perfect for them.”