Earlier this week, Apple released a Press release announcing that it was adding functionality to your iPhone. Soon you will be able to use it as a credit card reader. Well, sort of. Apple is adding the ability for third-party payment services to use the built-in NFC chip to accept contactless payments. As the press release says:
The new capability will enable millions of merchants across the United States, from small businesses to large retailers, to use their iPhones to seamlessly and securely accept Apple Pay, contactless credit and debit cards and other digital wallets with a simple tap on their iPhone — no additional hardware or payment terminal required. Tap to Pay on iPhone will be available for payment platforms and app developers to integrate into their iOS apps and offer as a payment option to their business customers.
The move had been previously reported by Bloomberglast month.
At this point, Apple hasn’t said whether it plans to offer its own service to take advantage of tap-to-pay functionality. Instead, it plans to offer the option for third-party payment providers to integrate with the feature. In its announcement, Apple said digital payment processor Stripe would be the first service to take advantage of the new capability.
This is a big deal because Stripe has become the default online payment processor for millions of small businesses. CB Insights, a search analytics company, believes Stripe processed over $350 billion payments in 2020. Its customers range from small online stores to software developers to large enterprises like Slack and Peloton.
While Stripe is currently one of the biggest players in online transactions, contactless payments represent an estimated $1.7 trillion market. according to analysts. The thing is, for small businesses, the choice is often between signing a contract with a traditional merchant service provider and paying for expensive point-of-sale terminals, subscribing to a service like Square, or using a peer-to-peer service like Venmo or CashApp.
Square, which first simplified point-of-sale credit card transactions for small businesses with its eponymous card reader that you can insert into your iPhone’s headphone jack, leads this market. Visit any farmer’s market or retail store, and chances are you’ll see someone using an iPad or iPhone with a small piece of hardware bearing the Square logo.
The problem is that you always bring other hardware that needs to be connected via Bluetooth. What if you have multiple people working? This means adding additional pieces of hardware, often at a cost that can add up. This added cost and complexity can be a big deal for a small business.
It’s at this small end of the scale that Apple’s new feature is most likely to make a difference. Being able to accept credit card payments directly on an iPhone means you don’t have to worry about pairing devices via Bluetooth or making sure your card reader is charged. You have just opened an application on the device that you already have with you.
Another benefit is the ability to use a single vendor for both online and in-person sales. For example, since Stripe offers both, a small business can have a single payment service. I imagine it won’t be long before other payment processing services follow suit, including Square.
I mention this because much of Apple’s announcement coverage suggests this could be the end of Square. For example, this Gizmodo Article just say that:
Basically, this cuts out companies like Square, which offer hardware that connects to an iPhone so small businesses (food truckers, farmers’ market stalls) can accept payments from debit cards, credit cards, smartphones and more. devices that support contactless payments.
It doesn’t really make sense. While it’s true that a business wouldn’t need any extra hardware to accept payments, I don’t think Apple is trying to kill Square. After all, the Square card reader is nothing sacred.
Square basically gives readers to customers who use its payment processing service. This is where Square makes its money, and there’s no reason why the company shouldn’t decide to make its software compatible with Apple’s new feature. Besides, it should.
Getting rid of complexity is one of the things Apple does best. Getting rid of complexity is also something that matters for small businesses that just want to serve their customers without having to deal with complicated hardware and technology. It’s amazing how the smallest features can disrupt an entire market.