If Apple creates a mobile person-to-person payment service, it could rock the banking and payments world as never before, some analysts believe.
There are already several person-to-person (also called peer-to-peer, or P2P) mobile payment services offered. They include PayPal's Venmo, as well as services from Facebook, Google, Square and others. The Wall Street Journal, citing unnamed sources, reported Wednesday that Apple was in talks with major banks to develop such a payment service, possibly as an extension of Apple Pay.
Apple has won consumer trust through the years in ways that those competitors and conventional banks can't match.
"Should Apple enter the P2P payments sector, this will create a shockwave across the competitive landscape," said Jordan McKee, an analyst at 451 Research. "While Apple drives attention and adoption toward specific sectors that it enters, it's equally well known for disintermediation."
Apple is "heavily and almost solely focused on the consumer value proposition, " added Gartner analyst Avivah Litan.
"Banks have realized that Apple is more adept at providing consumers with compelling value propositions and users interfaces than they are, and banks are anxious to follow Apple's lead and ride their bandwagon so that they can get a piece of the action rather than being left out in the cold altogether," Litan added.
Banks had false starts with person-to-person payments, back in the early 2000s when Bank One and Citibank offered their own services, which never took off, Litan said. PayPal's Venmo service proves that P2P payments can succeed more easily on mobile platforms because "the user experience is superior," she said.
Venmo officials said payment volume on its service jumped 200% in the third quarter of 2015 from the prior year, hitting $2.11 billion. A Venmo spokesperson, responding to the report that Apple is talking to several major banks about creating a P2P payment service, said: "We welcome any development that encourages people to address the awkwardness of dealing with cash when paying friends or family back."
Venmo has a potential advantage over any future Apple service because it works across multiple devices and operating systems, while Apple would presumably only support iOS devices. Venmo has about one-fifth of all mobile P2P payments, according to Aite Group, a consulting firm in the payments space.
Apple would face difficulty supplanting Venmo, McKee contended, but the company also has a unique opportunity to "tightly integrate P2P payments into the overall iPhone experience — something no provider has the capability of doing today."
Apple could layer P2P payments atop its iMessage service, creating a "compelling and intuitive service," McKee added. Apple could also push P2P payments software down to any recent iPhone via a software update, while other providers would face a more complex path to drive adoption.
Apple reportedly wouldn't charge banks for using its potential P2P payment service, which shows that Apple is intent on luring users into daily use of the iOS platform, for payments and other services, like music and video.
In any future Apple P2P service, banks stand to benefit from Apple's high standing with consumer satisfaction. But banks also might see long-term cost reductions through a P2P service as a replacement for inefficient and costly checks and cash, analysts said.
But cash and checks are still heavily used in the U.S., so any widespread adoption of P2P payments could take years, if not decades.
Africa points the way to P2P mobile payments
The use of P2P mobile payments is already widespread in many developing countries, especially in some nations in Africa, where the use of banks is very low and consumers are often referred to as "unbanked."
"P2P is big in Africa and usually works through the wireless carrier's billing or prepaid systems and the interface is SMS," Litan noted.
The prospect that the U.S. or other developed countries might move someday to a P2P mobile payment system that cuts out well-established banks and credit card companies may seem farfetched. But not entirely.
An Apple P2P mobile payment service "could be a viable model in other countries," added Darren Hayes, an assistant professor and director of cybersecurity at Pace University.
"P2P payments have been around for many years in certain countries where credit cards aren't trusted," Hayes said. Also, PayPal isn't available in every country, which could give Apple a potential advantage.
Apple's iPhones are highly secure and users are likely to trust them for P2P as they have for Android Pay, Hayes said.
Hayes said he is often called as an expert witness in courtrooms where he provides smartphone forensics testimony, after working with law enforcement agencies to break down confiscated smartphones to find critical data needed for investigations. He said iPhones are the most difficult smartphones to break into.
Given Apple's high level of security with the iPhone and Apple Pay, it would likely "engender trust for people who are looking for alternatives to pay, as well as for using something other than a credit card," Hayes said. "It's just a logical step for Apple to move to P2P."
P2P mobile payments, long term
The biggest implications for Apple and its competitors in mobile P2P payments are long term. In coming years, P2P payments could help replace the use of checks and could even help consumers largely cut banks out of the payment process.
"We'll see P2P payments continue to displace paper checks," McKee said. "Checks could become extinct in another 10 to 15 years. The impact on cash will be less dramatic."
Some P2P apps, like Venmo, could evolve into full-scale mobile wallets, which might be what Apple foresees.
"You could pay a merchant directly via your P2P app, completely circumventing the payment networks" which have been built up over decades by banks and credit card companies and many third-party companies, McKee said.
"The attractiveness of this approach to merchants is apparent, since it would result in reduced fees" that merchants now pay to banks for credit-card transactions, McKee added.
One implication of McKee's futuristic scenario is that big banks could be working with Apple on a P2P mobile payment scheme in order to avoid being cut out of their share of future transactions.
Apple wouldn't comment on any plans for P2P mobile payments.