By Anthony Voigt on Tuesday, 10 October 2017

A little over a year ago I wrote about some of the reasons for consumer dissatisfaction with Apple Pay on Apple Watch. Last week’s announcement of Apple Watch Series 3 (GPS + Cellular) has the potential to change some of that, so it’s time to revisit the issue. Is Series 3 a game changer for mobile wallets?

Where were we?

A year ago, Apple Pay on Apple Watch suffered from a few clear problems plus a few clear positives.

Watches are small

The form factor of Apple Watch (indeed any watch-like wearable device) brings with it certain usability constraints. The small size and need to maximise screen space end up forcing designers down the path of creating something akin to what I have called a ‘small phone strapped to my wrist’ which Apple Watch being a case in point. Since then various manufacturers have launched watches that seek to blend the beauty and craftsmanship of traditional watch-making with the capability of smart watches; but Apple Watch Series 3 remains true to its original design approach.

Watches have seemed most suited to micro-interactions

Due, in part, to the form factor, Apple Watch has focused on small-scale micro-interactions of functionality (mostly associated with notifications and advice). The most significant variation to this rule has been the focus on using the smart watch as a health monitoring and fitness tool; but this (in contrast to say, fitbod) has always been hindered by the need to sometimes carry a phone with you (see next point).

You have needed to carry a phone with you

This has been the big one. For Apple Pay (and many other apps) to work, the user has had to carry their phone with them. Which has been an impediment. If you need to carry your phone, why bother with a watch?

Apple Pay on Apple watch: a simple user experience

Apple Pay on Apple watch overcomes most of the watch’s form factor constraints by generally avoiding the need to use the screen. The mobile payments experience using Apple Watch is simple and free-flowing. Just double tap the side button to activate the Wallet app on your watch, then hold your wrist over the POS terminal. Done! You don’t even have to take your phone out of your pocket.

A ubiquitous and interoperable POS payments network

In Australia, Apple Watch-based mobile payments have been encouraged by the ubiquity and interoperability of the POS payments network; this means I can walk up to a merchant counter and have confidence that my card (or watch) will work irrespective of the merchant’s acquirer or my card issuer. A year ago, ubiquitous and interoperable POS payments networks had been established in many other markets (e.g. Singapore, Spain, Germany) – and these countries had (not surprisingly) started to see solid take-up of mobile payment usage. In other markets (notably the US), this was lacking.

What’s been happening?

Over the last year, a lot’s been happening in the mobile payments space, with a large number of new initiatives, entrants and business models. For the purposes of this discussion, though the main thing to highlight is the gradual increase in mobile payments/banking adoption. Firstly, across all markets we’ve seen a gradual (and in some cases significant) uptake in the proportion of consumers using mobile payments:

  • In Australia, ANZ (which launched Apple Pay over a year ago and is still the only large Australian Bank to offer it) now has 674K of its 10M customers signed up to various mobile wallet services
  • In the US, the EMV rollout is mostly complete and so the majority of POS terminals are NFC enabled, enhancing the ubiquity, if not the interoperability, of the US POS payments network. 17% of US consumers now regularly use their smartphones for payments, as compared to 6% in 2014
  • In Asia mobile payments via smartphone are becoming widespread. In India, 56% of consumers say they pay with a smartphone regularly, followed by Thailand (51%) and Indonesia (47%)
  • In Europe, regular use of mobile wallets is also increasing, for instance: Spain (25%); Italy (24%); Sweden (23%); UK (14%)

Secondly, the use of mobile for a broad range of banking services is now widespread:

  • In Australia, most retail banking institutions are observing that mobile traffic to websites and banking interfaces is in the majority
  • IMB recently announced that its app is its most-used digital channel with twice as many daily users as traditional Internet Banking
  • In Canada, RBC has witnessed approx. a 40% increase in mobile financial transactions since September 2016 due to a substantial expansion of its app’s capabilities

The efficacy, flexibility, and ease-of-use of mobile for banking is making it the dominant channel. But of course, ‘mobile’ comes in many flavours – and this is where Apple Watch Series 3 might be a game changer.

Where might we go?

The big difference between Apple Watch Series 3 (GPS + Cellular) and its predecessors is, of course, the inclusion of LTE cellular capability via its embedded eSIM, This, combined with the pre-existing GPS functionality of earlier watches creates an impressive functional capability base. The big opportunity from a banking perspective, of course, is to harness the embedded eSIM for mobile banking without a phone. A number of factors are already in place to help this:

  • Apple Watch Series 3 (GPS + Cellular) already supports Apple Pay so that users can undertake mobile payments without their phone
  • The architecture of watchOS already requires app developers to code Watch apps so that that they can run separately to iOS apps running on an iPhone.

Apple Watch and iPhone

Source

To date, this architecture has enabled the creation of banking watch apps that use the watch’s GPS function on a stand-alone basis for a limited range of location services. But the new cellular capability potentially allows a wider range of stand-alone functions. This means that, in theory, a user (one day) be may be able to operate their mobile wallet entirely through their Apple Watch, without having to have it tethered to a nearby phone.

Mobile wallets. Banking on my watch

Would it be desirable to run my banking from my watch? Maybe. The answer, in part, depends on how feasible it might be to operate a mobile wallet from a wearable device, so let’s turn to that question instead. Just how practical is this vision? As always, the devil’s in the detail. Issues that would need to be addressed include:

  • Network connectivity: initial reports on Apple Watch Series 3 are replete with instances of poor connectivity and drop-outs (issues which Apple is already addressing)
  • Battery life: initial reports on the new watch are generally complimentary about its battery life, but only up to a point: extensive network connectivity still diminishes this rapidly
  • OS and hardware capability: the APIs needed to operate full banking capability need to be available through WatchKit etc
  • User experience: it’s hard enough fitting small notifications and micro-functions into a watch-sized screen; squeezing the entire functionality of an internet banking system onto a watch face is another matter.
  • Security and risk management: the use of Apple Watch independently of the iPhone raises a host of security and fraud issues which would need to be addressed through a combination of technical and risk controls.
  • AI: The answer to many UX (and security) issues may lie with AI. UX problems associated with the small screen size of watches can perhaps be resolved by reconsidering the entire user interaction model through AI. Banks like Barclays have already tapped into Siri Kit to draw on Siri’s AI capability. With Barclay’s Siri payment function, customers can just say ‘Hey Siri, pay Mary Smith £10 with Barclays’ and (subject to various protocols) the payment is made. Extending this to many other banking functions could change the entire dynamics of banking interactions on wearable devices.

Apple Watch Series 3. A game changer for mobile wallets?

So, is Apple Watch Series 3 a game changer? I think it's evident that the answer to this question is: 'by itself, no'. But as a pointer to what might emerge, then the answer is more nuanced.

Freedom from phone tethering has the potential to be a technology breakthrough; creating the basis for establishing Apple Watch as a stand-alone platform for a range of mobile functions, including mobile wallets.

However, for this to succeed it will have to be combined with with other capabilities like AI, to establish a new user experience model capable of handling complex functionality like banking in a way that is suitable for the small form factor of a watch.

If this emerges then it has the potential to make banking on my watch more convenient, contextual, intuitive and personalised. And in that case, it’s clearly a step forward.