Karen Webster

Will Apple Own The Payments Customer?

“Those who cannot remember the past are condemned to repeat it.”

This is, of course, is the quote made famous in 1908 by Spanish philosopher and essayist, George Santayana. Published as part of his five-volume opus, "The Life of Reason," Santayana’s insight is that examining the past, and learning from it, is the only way we can avoid repeating the same mistakes in the future.


Eight years after Apple did its first mobile carrier deal, Apple pretty much owns the mobile customer who uses their handset. In 2022, eight years after Apple did its first bank and network deal, will Apple own the payments customer?

[bctt tweet="In 2022, eight years after Apple's first bank/network deal, will Apple own payments customers?"]

Here’s why I ask.


Up until about June 2007, network operators ruled the mobile world and they did so with an iron fist.

Handset manufacturers that wanted access to their networks had little, if any, bargaining power. In fact, to the network operator, the handset was an inconvenient means to their very lucrative end – simply a way for consumers to access their valuable voice and data services.

Carriers pretty much told handset makers and software developers what they could do or not do. Usually it was not to do anything that the carriers were doing, could do, might do, or might have some aspiration to do at some point in time.

Back then, remember, even if you had a smartphone, about the only “app” you could get was a ringtone, and the carriers even tried to control that. Carriers, therefore, controlled innovation in the mobile space since they more or less decided what got to market and when.

The consumer appetite for access to the Internet via mobile devices masked what was an obvious problem: there really wasn’t that much innovation coming from the mobile carriers. The mobile carriers though never felt much pressure to change things up. In the U.S., in particular, their handset subsidy business model locked consumers into contracts for at least two years, giving them a captive audience that minted them billions and billions and billions. Analysts reported that in the U.S. alone, mobile operators took home $11 billion a year in the early 2000s. Outside of the U.S., consumers didn’t have much choice either.

In 2007, Steve Jobs and the iPhone rocked their world.

It took 18 months for Steve Jobs to accomplish what everyone at the time said was impossible.

Jobs signed a 5-year exclusive deal with AT&T to sell Apple iPhones/tablets in exchange for getting complete control over the design of the handset, how much that handset would cost and the software that would come with the phone – and most importantly what wouldn’t (including anything from AT&T itself). Jobs also convinced AT&T to invest millions to create a new customer onboarding and service provisioning process and an unprecedented revenue sharing deal that would pay Apple $10 a month from each iPhone customer’s monthly AT&T phone bill. (He did the same thing in other countries—every country initially had an exclusive.)

Apple and Jobs gave up very little in return.

What started at Apple once-upon-a-time as a vision for it to become its own MVNO and control every single aspect of the mobile/customer experience, ended in Apple’s ability to leverage the assets and the pocketbooks of one of world’s major mobile network operators – and drive a massive shift in the balance of power in the mobile carrier ecosystem in the process. Why go through all of the rigmarole to become an MVNO when Apple could get the mobile operators to bear the cost of operating the network that powered the device – and get them to pony up a cut of the revenue!

Pretty soon, and certainly by the time the AT&T contract was up, the handset and access to apps became the reason that consumers wanted to buy a mobile device – and they were willing to spend big to get that. The iPhone showed the world what innovation using a mobile device with access to the Internet looked like, and Apple became the brand synonymous with mobile innovation. iPhone customers were regarded as innovative by association, and Apple the primary brand that the customer associated itself with in the process.

[bctt tweet="The iPhone showed the world what innovation using a mobile device with access to the Internet looked like..."]

Of course, a consumer could only use the Apple iPhone with AT&T network services and had to go to an AT&T store (or the Apple store) to purchase the product. But AT&T was no longer driving the purchase behavior of the phone nor the consumer affinity to it. In the U.S., Verizon just about had a heart attack over AT&T’s lead and ran to its archenemy, Google, and begged for an Android phone.

Now before you feel too sorry for AT&T, they didn’t exactly come out on the short end of every stick for those 5 years. Their average revenue per user was nearly 2x that of the other carriers, $95 compared to $50. AT&T was still ringing the register selling voice and data plans, but they were no longer front and center with their iPhone customers. Customers just loved the iPhone in ways that they didn’t love their Motorola phones.

And as you will soon see, that would create a big issue for AT&T longer term.


It’s September 9, 2015, just about 4 years after Apple’s exclusive deal with AT&T expired. Apple is on its way to becoming the world’s first trillion- dollar company and is a beloved consumer brand everywhere in the world.

It’s also the major force in mobile.

Apple iPhones are now available from almost all of the major mobile operators and they’re selling like hotcakes all over the world. The iPhone 6 and 6 Plus are breaking sales records, despite its $750 (and up) price tag. iOS market share is rising and Tim Cook uses every opportunity he has to tell the world how many “switchers” Apple is snagging from its rivals. Samsung’s declining sales and profits are exhibit one in supporting his claims.

During the course of the nearly two-hour Special Event that Apple hosted on Sept. 9, Apple announced something that likely had the mobile network operators in the audience – who of course knew this was coming — politely applauding while at the same time reaching for their nitroglycerine tablets.

Apple announced that it was entering the phone leasing business.

Starting with their new model – the iPhone 6s and 6sPlus – consumers will be able to pay a modest monthly fee to get a brand new iPhone.

That fee includes Apple’s $129 Apple Care+ service. Under this plan, consumers can turn in those phones each year for the newest model. In fact, the installment plan economics are structured in such a way that if customers wait two years to turn in their phones, like they used to in the days of mobile operator subsidies, they will end up paying more than the “list price.”

Apple’s phone leasing strategy is about three things, two of them pretty obvious and one maybe not so much.

First, this plan is about expanding the pool of Apple iPhone users, including those who aren’t able to spring for a $750 phone. Can you spell shot-across-the-bow-at-Samsung-and-Android right before their launches? Apple will also now get, each year as part of this program, a bunch of one year-old perfectly fine iPhones that can be refurbished and resold to a whole set of new customers, further expanding the Apple fan pool. Double shot across the bow.

Second, this plan is about creating a ready-made pipeline for new iPhones each year. What better way to ensure that the sales of new iPhones are robust each year than to have a pool of people who are always rolling them over to the newest model?

Third, and perhaps not so obvious, is this program’s ability to turn the mobile operator into
its absolute worst nightmare – a dumb pipe – and the customer relationship over to Apple.

The Apple deal is only available at Apple stores and, obviously, has to be done in person. So participating in this program also now comes with all of the sales savvy that the Apple sales associates can and will muster to close a deal. Although the installment program must be activated on one of the major network carriers – so AT&T, Sprint, T-Mobile or Verizon - consumers don’t have to sign a long-term contract. And, since the phones sold are also unlocked, it’s remarkably simple for AT&T consumers to become Sprint customers or T-Mobile customers or Verizon customers – and vice versa.

Talk about removing friction.

For those customers, it will be all Apple all the time.

Billing is via Apple who has the customer’s phone number and email address. Problem with your phone, Ms. Customer? No problem, call our Apple Care+ line and we’ll talk you through it. Question about the phone’s features and functions? Why don’t you come in and we’ll see if we can show you a few helpful tips. You don’t like your mobile carrier? Here are three others to pick from – see who’ll give you the best deal.

So Apple managed to suck all of the power from the mobile carriers—and boy, did they have a lot before Apple came along—and hand it to itself. Of course, no one feels that sorry for the carriers, many of whom had about the worst consumer ratings of any companies, at least in the U.S.


If Apple’s mobile operator playbook sounds hauntingly familiar, it might be because it is. Apple Pay came to market last year in a remarkably consistent way.

Just like the iPhone when it first launched, Apple leveraged existing ecosystem assets and infrastructure. Was its embrace of the existing ecosystem the result of a negotiation to keep it from becoming its own network? That’s for you to speculate. But why should Apple go through the hassle of becoming and operating a payments network when it could get the existing ecosystem to bear all the cost in exchange for favorable terms – and at least for a few years – the knowledge that it wouldn’t become a competitor!

Apple’s embrace of NFC as the enabling technology also drove massive investments in network-developed token services programs to keep data secure, giving birth to a new concept called payments tokens. Just like the iPhone at launch, these programs also made service provisioning of the consumer’s Apple Pay account easy for both the consumer and the issuer to have an enabled account to use at participating merchants and surely cost the networks a bundle in the process.

Apple also dictated its own terms to issuers – the analog to mobile carriers in this little vingette - basis points on transactions and committed advertising spend to drive awareness. That alone has shifted payments ecosystem dynamics in a pretty significant way. Let’s not forget the mobile carriers, who had been planning to run with payments since the early 2000s, and had launched their own solution in the U.S.; Isis, which became Softcard, literally threw in the towel after Apple Pay came out.

Just like the mobile carriers circa 2007, issuers’ efforts at mobile payments innovation has largely languished. (I call out issuers since for purposes of this piece, they are the corollary to the mobile carrier.) Prior to the financial crisis, issuers were almost too unfocused in their efforts to innovate mobile payments, spreading investments too thinly across projects that could or would never scale.

Post financial crisis, issuers found themselves up to their eyeballs in a slew of new compliance and regulatory matters, diverting people and money away from innovation. And what innovation was undertaken was slow-rolled by legions of risk and compliance officers who introduced friction with new processes and procedures that just made innovation cycles longer, harder and more expensive. Those things, along with the feeling that their plastic payments card audience was relatively sticky and captive, and nothing else was really setting the mobile payments world on fire, didn’t exactly create a burning mobile payments innovation platform for most issuers.

Then, along comes Apple with Apple Pay and its brand reputation for innovation and transformation, and issuers jumped on board in the U.S. like passengers on a sinking ship jump into lifeboats. Whether driven by FOMO (fear of missing out) or the expectation (hope?) that this was their ticket to mobile payments innovation, issuers, at least in the U.S. initially asked where they could sign – and did.

And just like the case with mobile operators back in 2007, the Apple Pay brand is primary. Yes, a digitized version of the issuer’s card is in the Apple Pay Wallet icon on the iPhone, but consumers pay with “Apple Pay,” perceive that they are paying with Apple Pay, and see Apple Pay on advertisements in which the issuer brand is both secondary and in many cases, largely invisible.

Let me repeat when I go to Whole Foods and pay using Apple Pay, I don’t check for the Visa logo, or any other card logo, I don’t focus on what card I registered with Apple Pay—I look for the Apple Pay logo, put my thumb on TouchID and pay.


“The truth is cruel, but it can be loved, and it makes free those who have loved it.”

That’s George Santayana again. This time, he reflects on the need to confront the truth, even if painful, since doing so can be both liberating and constructive.

No one knows what the future holds for Apple, Apple Pay and/or mobile payments largely. We are just getting started and the landscape, frankly, is just starting to get interesting.

But one thing is clear. Apple sets the rules for how life in its closed ecosystem will be lived. And it can do that because the consumer has professed its love for Apple’s products. And as long as that remains the case, those who wish to live in Apple’s world will have to play by their rules, even if they wish they were different.

Only time will tell if consumers will decide whether Apple Pay is largely how they wish to pay online and in physical stores. But that is who will decide how this all goes down for Apple and everyone else. And since Apple has a couple of years left on their contracts with issuers and merchants, they’ll surely do all that they can to drive that preference and build a relationship with the consumer while their preferred terms are in place and while everyone is playing – or has to play together – in the same mobile payments sandbox.

We’ve heard from Apple that, soon, a number of new features and functions will emerge to persuade consumers to engage with and use Apple Pay regularly. If that happens, and consumers ignite Apple Pay, then one might be tempted to imagine an ending to the mobile payments story, starring Apple, that could be quite similar to how their mobile operator story has played out over the years: primary control of the customer relationship with payments and commerce services as a discounted, price-driven, pushed-way-far-to-the-back commodity.

After all, Apple knows that their consumers drive 65 percent of spend today, and with preference comes control of a population within their world that everyone – networks, issuers, merchants and innovators – want a relationship with too.

Now, decisions about services as personal as payments are often wrapped around other dependencies, like where banking relationships are, satisfaction with banking services, and value of existing loyalty programs – and how much value the product or service provides. But consumers have a couple of cards in their physical wallets and, and like voice and data services, can switch them up without too much of a problem. I’ll bet you’ve even done that a few times yourself.

[bctt tweet="Now, decisions about services as personal as payments are often wrapped around other dependencies..."]

Which is also why you’re also starting to see issuers and networks play the field, literally, so that they can keep their options open as the mobile payments ecosystem evolves. And why it shouldn’t surprise anyone if some big moves are made by issuers, networks and other providers whose future prospects could be at risk of becoming the payments version of the “dump pipe” – or just plain irrelevant - should Apple Pay ignite.

So, now might be the time to step back and reflect on what the world might look like in 2022 while we’re still very much in the early innings of our mobile payments game. After all, as George Santayana said, those who cannot remember the past are condemned to repeat it.

Consider yourself reminded.



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.