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Where Apple Watch goes, so goes Apple Pay

Wearables could lead to payments shift

Bank tech trends can make your head spin. So each week longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.” Bank tech trends can make your head spin. So each week longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

The recent and enigmatic quarterly report by Apple CEO Tim Cook about sales of the Apple Watch since its release in April invites speculation about the future of its associated application, Apple Pay.

The fortunes of both certainly are intertwined. They also, indirectly, point to the possible future of wearables, specifically watches, as payment facilitators. Even more, one could extrapolate about wearables as new tools in the workplace.

What did Cook say about Apple Watch sales in his recent report to analysts? Only this:

“We had an amazing quarter, with iPhone revenue up 59% over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch.”

No breakdown of how many Watches were sold, or associated revenue. Just the total, in the “Other Products” category, of $2.6 million—a total that includes sales of Apple TV, Beats Electronics, iPod, and Apple-branded and third-party accessories, in addition to Apple Watches.

Based on such scant data, analysts, which originally predicted sales of 4 million Apple Watches in the quarter in which it rolled out, now estimate that between 2 million and 2.5 million units were sold. “To be clear,” says Evan Niu, in a Motley Fool post, “even 2 million units sold is an unqualified success, immediately making Apple the top smartwatch vendor.”

More smartwatch growth ahead

But that was then and now is now. A recent Reuters/Ipsos poll concludes that about 6% of U.S. adults plan to buy an Apple Watch, with men twice as likely as women. Based on Census data, this would translate to potential sales of 15 million Apple watches. The poll further finds that 18% of respondents were very or somewhat interested in buying the watch, with the highest interest among men aged 18 to 28.

All that applies to the current version of the watch, which has been criticized for low battery life and slow-loading apps, is available only in Apple stores, and—until the last few weeks—only worked in the United States.

This state of affairs is changing.

First, Apple Watch went on sale worldwide in mid-June. Then, Apple Pay—which previously was available only in the United States—went live in the United Kingdom July 14. The blog Digital Trends reports active efforts underway for Apple Pay to expand relatively soon in Canada, Europe, and China.

Second, beginning in August, the Apple Watch will be available for sale in 100 Best Buy stores nationwide as well as online, expanding to an additional 200 stores in time for the holiday season. That will make it immediately more accessible to many more people.

Third, there is no doubt that Apple already is working on upgrading the Apple Watch, likely due out sometime next year. The Reuters article quotes Van Baker, an analyst at Gartner Inc., saying that many potential buyers will end up holding off until the second version of the watch appears.

Another plus: The cool factor

So the argument goes, as the number of Apple Watches actually walking around on people’s wrists increases, so too does the likelihood of people actually trusting and using the Apple Pay app in their daily lives.

It’s a fair argument. When cell phones first appeared, people were doubtful about security and usefulness. The technology improved astronomically and quickly, such that the old flip phones hit the dust in favor of smart phones that offer much, much more functionality than simple voice communications. And that includes payments.

So, getting to payments, and specifically Apple Pay, what makes having it available on one’s wrist any more useful than what people already find convenient—namely, hauling around a smartphone?

At least for early adapters, there is the “cool factor.” The Reuters/Ipsos poll asked about that, and 53% of men aged 18-28 agreed that the Apple Watch is “cool,” compared with an overall 42% of respondents—which seems pretty high too.

A Javelin report released in April, just as the Apple Watch was being released, observed: “Wearables owners today are gold-standard customers—high income, younger, and extremely engaged in digital banking, payments, and shopping. Smartwatches are unique devices, designed for lightning-fast and personalized interactions.”

Javelin’s Mary Monahan also points out the “real test comes in the second year, when the fast followers come on board. At that point, smartwatches are expected to net annual double-digit gains in overall consumer adoption.”

Another point: Apple isn’t the only wearables/payments player. Here’s just one, admittedly oddball, example: In April—again, just as the Apple Watch was debuting—American Express partnered with Jawbone, which makes a wristband fitness tracker, to allow members to tap to pay with said trackers.

“We believe this unique technology will delight our active, digitally-savvy card members in a powerful way and drive a new type of engagement at hundreds of thousands of merchant locations nationwide,” says Leslie Berland, executive vice president at American Express.

(Of course, American Express, along with Visa, MasterCard, and Discover, all got on board with Apple Pay.)

Workplace uses foreseen

Yet another point: Business leaders and analysts already are speculating about how wearables, such as watches, could be put to use in the workplace. For example, Robert Half Technology conducted a poll of CIOs and found 81% saying they believe wearable computing devices will become common workplace tools, probably within five years. Possible uses could include recording meetings, scanning documents, providing navigation, and taking pictures for business. Admittedly, the poll didn’t include payments, let alone singling out Apple Pay and Apple Watches, but it presupposes that such wearables would have to (1) be relatively commonplace in the workplace and (2) be generally deemed to be of value in some ways. And that argues for the wider adoption of watch-type wearables.

Also, Celent speculates in a report about wearables in the office—specifically wealth management.

“Existing financial apps for wearable devices are mostly focused on personal financial management/budgeting and banking services; this caters to the millennial and mass affluent customer segments,” Celent says.

One last point: Financial institutions sense where the wind is blowing and are signing up. According to the DigitalTrends blog, as of early July, more than 300 banks and credit unions, from the largest to the corner community, now support Apple Pay. One can presume that this aggregate sentiment is based on at least the perception that more and more customers will demand it.

And that all circles back to the potential proliferation of wearable devices that can host payments.

Celent, even though it speaks specifically about apps within wealth management, summarizes where wearables and payments stand right now: “Wearable technology, particularly in the wealth management industry, is in its infancy, which is not too dissimilar to smartphones and tablets about ten years ago. Celent estimates that the wearables market will grow at a similar adoption rate as smartphones and tablets, possibly even more quickly.”

Sources used for this article include:

American Express And Jawbone Partner To Launch UP4—The First-Of-Its-Kind Fitness Wearable With Built-In Amex Payments Technology

Here Are All The Places That Support Apple Pay, Including 300+ Banks And Credit Unions

Finance Meets Fashion: Wearables In Wealth Management

Apple’s Watch Is Coming To Best Buy Stores In August

Tech Leaders See Wearables Working In The Workplace

Young, High Income Consumers Lead The Smartwatch Revolution

Ipsos/Reuters Poll: Apple Watch

There's No Way Apple, Inc. Sold Over 4 Million Apple Watches

Apple Reports Record Third Quarter Results

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected]

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