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COMMENTARY: How History Is Repeating Itself With Apple Pay
October 10, 2014

By Richard Crone and Heidi Liebenguth, Crone Consulting LLC

If you are an issuer of Visa or MasterCard, your deadline for participating in the Apple Pay service set to debut later this month has already passed. It was Tuesday, and issuers didn’t have much time to think about it (let alone perform a technical due diligence or negotiate terms).



Image Credit: Apple Inc.
Apple Pay is scheduled for release this month.

Whether you signed up for Apple Inc.’s hot new mobile-payment scheme or not, though, there are lessons from the recent past you might want to think hard about. These are lessons that will apply whether the service provider is Apple or some other technology provider.

If you’ve been in the industry more than 20 years, Apple Pay is a movie you’ve seen a few times before. And while the names change, the plot is the same:

1. First, financial institutions recognize a high-potential innovation but are too slow to respond;

2. Next a large, highly-successful technology company, with both cash and cachet, sees both the same opportunity and financial institutions’ reluctance to move, and offers a solution aimed at the financial institutions’ customers;

3. Financial institutions immediately go on the defensive, spinning up secret teams and burning time and capital all to get a deal done lest they be locked out;

4. The technology company makes a big announcement and shows off the first group of financial-institution logos;

5. Equity analysts cheer, the technology company gets a lift in market cap, and the financial institutions get  some headlines;

6. The financial institutions locked out from the initial announcement are obliged to sign a “take-it-or-leave it” agreement;

7. As the solution goes live, customers get an experience that puts the technology company’s brand in the forefront and the financial institutions’ brands in the background;

8. More important, the experience is the same regardless of which financial institution customers have a relationship with;

9. Financial institutions quickly realize they’ve been marginalized–minimally on brand share or, worst-case, financially with smaller margins;

10. A year or so goes by, and when financial institutions measure the impact of marginalization, they quickly commit to fielding their own branded solutions.

Here are some examples of how this plot unfolded the same way over the past 20 years.

1. Intuit (Quicken, Personal Financial Management)

In 1995, Intuit sought to improve its personal financial-software package, Quicken, by creating the “Quicken Financial Network.”

Back then, Intuit successfully argued that the ability to aggregate their customers’ data from multiple financial institutions would help those same financial institutions remain relevant.

As a result, financial institutions opened their online financial systems to Quicken so customers could download balance and transaction data into their Quicken software so they could see their total financial health.

Meanwhile, once users set up their default connection to their financial institutions so data could be downloaded, they received a “Quicken” experience–never were the financial institutions to be seen in that user experience.

In many ways, Quicken Financial Network was the catalyst for financial institutions to launch their online financial services.

2. America Online (Banking Center, Online Financial Services)

By 1997, America Online (AOL) had millions of subscribers logging into their service 30 to 40 times per month delivering content aggregated from a diversity of legacy sources (e.g. News, Sports, Weather, etc.)

When AOL realized their most profitable customers spent a disproportionate amount of time in the Personal Finance channel, they launched the “Banking Center.”

The Banking Center provided subscribers a gateway to their favorite online-banking service (e.g. Bank of America, Wells Fargo Bank, Citibank Direct Access, etc.) from the “convenience” and “security” of their AOL session.  Given connectivity and user-interface limitations at the time, AOL could present only five financial institutions on the Banking Center’s main screen.

This ignited a bidding war among the financial institutions at the time to get prime position. These institutions spent millions to be on the first screen and rationalized this would keep them top-of-mind with current customers and attract new customers.

Financial institutions that didn’t make the cut were offered a standard agreement to participate, but their customers would have to click past these top-five bank logos to connect with them.

The Banking Center was little more than an emulation of the financial institutions’ online-banking service. The user experience was all about AOL and offered marginal opportunities to introduce value-added services, such as opening a new account and/or bill payment.

Despite its drawbacks both economically and experientially, financial institutions rationalized the relationship by saying AOL subscribers were more profitable and less likely to leave the financial institution if this service were enabled.

However, within two to three years, financial institutions downgraded their partnerships with AOL and replaced it with an aggressive promotion of their own branded Internet-banking Web sites and incentivized their customers to bypass AOL altogether to access their service.

In many ways, this signaled the high point for AOL, as consumers ultimately preferred to connect with their financial institutions directly.

If you don’t study history, you are doomed to repeat it.

In each case, the relationship between the financial institutions and the technology company broke down for the following reasons:

Control: Financial institutions lost control of the enrollment process, valuable data, and the direct relationship with their customers;

Access: Customers could only access their financial institution(s) through the technology company’s platform, which disenfranchised other customers (e.g. Quicken vs. Microsoft Money, AOL vs. Prodigy, etc.);

Revenue: Financial institutions gave up revenue spreads, thinking they could make up for it by acquiring new customers, cross-selling to existing ones, and/or retaining their most valuable customers;

Experience: Financial institutions realized they subordinated both their brands and the user experiences they considered key to differentiating themselves among each other.

Fast forward to today, and history seems to be repeating itself. The Apple Pay user experience is focused completely on the Apple brand. Payment card brands are merely small tabs in a long list in Apple’s Passbook, or potentially invisible during the payment process.

The promise of mobile is an always-on, always present, direct two-way connection with the customer, responsive to their history, location, preferences, and more. Apple Pay would put all this at risk, because payment is the essence and foundation of the customer banking relationship. Are banks ready to surrender that?

In the short term, financial institutions (and some retailers) will feel compelled, even pressured, to participate in Apple Pay. Apple’s rushed deadline for contractual commitments from financial institutions was designed to create urgency, without actually promising real promotional or adoption support.

However, as recent history proves, such relationships ultimately become the catalyst for financial institutions to develop their own solutions–solutions that enable them to provide greater value, enable faster access, and generate incremental revenue through highly differentiated customer experiences under their own branded user interface.

Truly, the one who enrolls is the one who controls.  Thinking strategically, the smart financial institutions and retailers will leverage the promotional value, customer education, and merchant-adoption benefits of the Apple Pay launch to build a pathway to reinforcing their own customer relationships and building new value within their own branded mobile-banking and shopping apps.

Go mobile, but not without a strategic map that guides you to reinforce your own brand, your full menu of accounts, with direct CRM contact with your own customers, in your own bank, credit union, and/or retailer branded app.

Richard Crone and Heidi Liebenguth lead Crone Consulting LLC, San Carlos, Calif.


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