Apple Pay comes to the UK – at last!

Apple Pay NatWestAs everyone now knows, Apple Pay launches in the UK in July. If you have a card from a participating issuer and an iPhone 6, 6 Plus or Apple Watch (paired with an iPhone 5, 5C, 5S, 6 or 6 Plus) you can pay in store at contactless card terminals. In app you can pay using an iPhone 6 or 6 Plus or iPad Air 2 or Mini 3. So far my experience of using my Apple Watch to pay in store has been limited to Starbucks (using the Starbucks app) so I’m very excited about using it in lots more stores!iPhone6_Watch_iOS9_Wallet_NatWest-PRINTiPhone6_Watch_iOS9_Wallet_NatWest-PRINTiPhone6_Watch_iOS9_Wallet_NatWest-PRINT

Apple has clearly done a good job getting a critical mass of card issuers on board at launch with most of the major issuers committed, either at the start or soon after. At launch American Express, First Direct, HSBC, Nationwide, NatWest, Royal Bank of Scotland, Santander, Ulster Bank cards will be supported. Bank of Scotland, Halifax, Lloyds Bank, M&S Bank, MBNA, TSB will follow.

Apple Pay AmexObvious omissions are Barclays and Capital One. Whilst Barclays has its own strategy around Pingit and also contactless wristbands, it is still a curious decision not to sign up at the start and one that will annoy many customers. Both Barclaycard and Capital One in the U.S. support Apple Pay which just goes to show how fragmented banks and payments markets are!

There are around 400,000 places that support contactless payments in the UK. It appears that most of these will limit Apple Pay transactions to the usual £20 contactless transaction limit (£30 from September), despite the superior authentication offered by Touch ID. However some retailers will not be bound by the limit, as in the U.S. I suspect that some contactless terminals will not support Apple Pay, especially early generation models. Currently neither my American Express nor Capital One cards work for contactless payments via any Caffe Nero terminal I’ve tried (Chip and PIN is fine and contactless elsewhere works). These terminals are old and seem to be incompatible with newer contactless cards.

Apple Pay HSBCApple has a handy summary of the key places where you can use Apple Pay, both contactless and in app Apple Pay stores.

Whilst Apple Pay is not truly disruptive because it uses the existing card scheme payment rails, it moves consumers along the journey of mobile device payment acceptance whilst improving transaction security. For consumers, frictionless payments moves a step closer.

Time to switch your bank account?

Changing banks is one of those activities that most people seem to avoid. Despite the industry moving to seven day account switching, the number of customers switching bank accounts in the UK is virtually flat and according to the Payments Council, in 2014 there were only 1.2 million switches. The recent FCA report (Making Current Account Switching Easier) states:

“Since September 2014, annual switching volumes have begun to fall back and by January 2015 were 16% higher than when CASS was launched and only 2% higher than the November 2012 peak in switching volumes using the previous switching mechanism.”

The report from the FCA on the effectiveness of the Current Account Switch Service suggests this is because of consumer inertia and awareness and confidence in CASS being low. My experience of using CASS last year was good. Apart from a lot of paperwork that had to be completed, my switch went through as planned, with no errors. The FCA has suggested that account number portability would improve the situation but as the current system works it’s hard to see that spending a huge sum of money on making switching simpler will make a difference.

The Payments Council publishes data each quarter showing gains and losses by bank. Whilst the legacy banks are net losers (as expected) it’s impossible to build a clear view of challenger bank gains because some of them (e.g. Handelsbanken, Metro Bank) don’t provide data and others are included under parent brands (e.g. First Direct and M&S are included under HSBC). TSB data would be interesting as with 630 odd branches and a ‘new’ brand on the high street I would expect it to be making an impact but the most recent figures include it under then parent Lloyds. Last year TSB added 500,000 new accounts, many presumably from other banks.

I see the biggest barrier to encouraging consumers to switch banks being consumer inertia, driven by a perception that most banks are similar, both in products and service. We have yet to see much market differentiation via product differentiation. Whilst there are some excellent ‘challenger’ banks out there, their profile is often very low and their range of accounts limited; some like Aldermore and Charter only offer deposit accounts. As the challenger bank market grows and the number offering current accounts increases, consumers will have more choice of where to switch. Digital banks like Atom and Starling plus the RBS spin-out Williams & Glyn will add to the choice. However ultimately it will be up to consumers to show their banks what they think of them; identify more appropriate organisations for their banking needs and move their accounts to competitors.

You can read the full report here.