Understanding Apple pay technology and the future of banking

With plenty of media fanfare Apple recently launched Apple Pay, a payment system that allows you to use your phone as a digital wallet.

While it’s a new technology, the foundation is still built upon a 50-year old credit card system with centralization, intermediaries, and banks.

For retail banking the implications are quite big. It turns mobile and credit card payments into a red ocean with a massive shark. With customer reach and large volumes to negotiate with Visa/Mastercard, it will be difficult to compete and outspend Apple in the mobile payments space.

At the same time, PayPal announced a partnership with Coinbase, BitPay, and GoCoins so that their merchants can now accept Bitcoin. In the payments space, Paypal stands to lose if Apple Pay takes off, and the only way to compete is with a disruptive technology and innovate harder.

Apple can’t change the fundamental architecture of payment technology - centralized, identity-tied, and vulnerable credit cards issued by banks. Bitcoin on the other hand offers a completely different architecture: de-centralized, identity-protected, and an open network.

While nobody can predict which architecture will prevail in the future, one thing is for certain: banks are no longer the only players in finance. Software is eating the world and tech is now in full competition. They can also innovate, pivot, and move faster than banks that are slow in adapting to change.

More and more businesses and industries are being run on software and delivered as online services—from movies to agriculture to the military.

It would be wise for banks to invest in technology and harness it as an advantage to differentiate, or risk being on the wrong side of history like newspapers and the music industry.

Terry Lin is the founder of #BALLER Leather a boutique leather accessories company that offers 100% handmade travel wallets, card holders, and ultra-slim minimalist wallets. You can find him @itsmeterrylin on Twitter or email terry@ballerleather.com.

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