US payments: could GAFA change it all?

Payment ecosystems in the USA aren’t working. They barely exist and are far behind other countries in terms of just going from A to B, but that’s set to change.

Chip and PIN payments came to the US in 2018, although it was poorly implemented at best and credit card signatures have only just been phased out. The US are behind the times compared to the rest of the world. You can’t even use contactless payments on the NYC subway to pay for your travel.

Our media team was there the other week, so I asked them to check. It’s not a great experience having to swipe that Metro card what felt like a hundred times before it would let them through, especially coming from London where you can just tap and go using a bank debit or credit card. Ditto Hong Kong or, indeed, any other global city with contactless.

This isn’t news; the US has always been slow to adapt to financial technology, especially when it comes to payments. Part of it is because of the sheer size of the country, and another reason is the thousands of competing banks. There’s been no significant collaboration across them to work on payments and no single voice leading the way.

Apple recently announced its new sleek white credit card. 11:FS Chief of Staff Leda Glyptis commented that it was unlikely to make much of an impact outside of the US.

But that’s still a market of over 250 million adults ready for access to digital banking, especially with a brand they trust, so if the rest of the world won’t be changed by this so be it. The US will be and that’s a market the size of multiple European countries.

Apple is good at lots of things, but they’re truly great at developing an ecosystem. Once you buy into the products you can get locked in very quickly. Macbook, iPhone and iPad all work seamlessly together and the own-brand software glides between the platforms. Customers experience a seamless transition between products that talk to each other instantly and easily. It’s a great user experience, and it's the sort ofn experience that is non-existent in the US payments space at the moment. US payments are a broken system at best and are failing to keep up with the rest of the world. Right now Americans use mobile payments less than checks.

Steps are being made in the right direction, however. Apple plans to bring ApplePay to the New York subway system by the summer of 2019, a mere 22 years after Octopus launched in Hong Kong, and 5 years since contactless cards were accepted across the London transport network. It’s set to be limited access, rolling out alongside scheduled NFC upgrades to the subway’s ticket system. Of course, the same goes for Google Pay, which does bring up questions around whether these products are innovative or just riding on innovation.

Apple is nothing if not entrepreneurial. The technology pioneer has a real chance to develop a payments ecosystem for customers in the US that locks out competitors and minimises friction. There’s potential in the US market for a product that captures customers before they even think about finance by building a history of great experiences.

Right now, that hasn’t happened. There’s still space in the US market for any of the banks to pick the right partner and deliver an unrivalled experience for customers that’s digitally native in the way that they’ve come to expect from the GAFA companies.

Once that ecosystem lock-in does come in - and it looks like Apple is moving in that direction - it’ll be an even tougher struggle for the US banks to make a move that matters.