Apple Pay and the Future of Wallets

A little over one year ago, Tim Cook spoke at President Obama’s Summit on Cybersecurity. He said:

We can imagine a day in the not-so-distant future when your wallet becomes a remnant of the past. Your passport, your driver’s license, and other important documents can be digitally stored in a way that’s safe, secure, and easy to access — but only by you. After all, we shouldn’t have to trade our security for the convenience of having all of this information at our fingertips.

As I wrote at the time, that’s Cook saying Apple wants to turn your iPhone into a digital wallet, complete with the ability to store “your passport, your driver’s license, and other important documents” in your phone.

But in order to turn wallets into remnants of the past, Apple will have to solve many complex, unacknowledged problems. The company will have to create digital equivalents of everything stored in physical wallets: credit cards, debit cards, membership cards, ID cards, business cards, health insurance information, and cash, among other things.

And in order to realize Cook’s vision of an iPhone that also stores your passport and driver’s license, Apple will have to persuade and then work with countless governments around the world. Additionally, the company will have to ensure that others accept what’s stored in its digital wallet. And even then — even if Apple can design the perfect product and ensure 100 percent compatibility — there’s no guarantee digital wallets will be universally used.

Apple’s quest to replace the wallet began in 2012 with the release of Passbook for iOS. The built-in app stored things like boarding passes and loyalty cards. Since then, Apple has changed the app’s name to Wallet and integrated Apple Pay into the app, allowing people to pay for things with their phones.

Building a way for people to pay businesses was a good first step towards making the iPhone a wallet replacement. The next logical step is to build a way for people to pay each other. And Apple, no doubt, is working on exactly that.

However, an Apple Pay-based peer-to-peer payment system won’t necessarily be universally accepted the way cash is. If you owe your friend $20, you can take cash out of your wallet and give it to him. But if your iPhone replaces your wallet — i.e. you don’t use a physical wallet anymore — and you need to pay your Android phone-owning friend $20, then what? You take out your iPhone to send him the money, and then, whoops, you can’t because he doesn’t have an iPhone?

This is an issue that Apple will have to address.1 People need to be able to pay each other regardless of what phone they own. Cash is universal; paying people on our phones will have to be, too.

Cash is not the only thing that could have compatibility issues. The same issue exists for credit cards, debit cards, membership cards, ID cards, and health insurance information, among other things.

Yes, as more card issuers support Apple Pay and NFC card readers become more prevalent, the credit and debit card compatibility issue will slowly disappear. However, Apple will still need to create a method to store membership cards, ID cards, and health insurance information electronically. It will also have to ensure their acceptance. You can’t use your digital health insurance card if your doctor doesn’t accept it.

In order to realize Cook’s vision of an iPhone that stores passports, driver’s licenses, and “other important documents” (e.g. Social Security cards), Apple will have to convince governments to allow digital passports and driver’s licenses, and then it will have to work with those governments to create them. The process would likely take years.

In the United States alone, the company would have to work with the federal government to create digital passports and Social Security cards, and it would have to work with all 50 state governments to create digital driver’s licenses. Apple would also have to work with parts of local governments (e.g. police departments) to ensure that these digital equivalents are universally accepted. You can’t use your digital driver’s license if the government doesn’t accept it.

And that’s just in the United States. Apple would have to do this in countries around the world.

There’s also the issue of international travel. What happens if you’re flying to another country, and when you arrive at customs, you realize that this new country doesn’t have a digital passport reader installed? Or if you fly to a new country, arrive at customs, and your battery is dead?

In fact, a dead battery hinders everything a digital wallet would do. How do you use your phone to pay a friend, buy groceries, or give a doctor your health insurance information with a dead battery?

It would be extremely hard for Apple to address all of these issues, but even if it could, there’s still no guarantee the company would be able to turn wallets into remnants of the past. Some cultures prefer to use cash over credit cards, and some cultures don’t value technology as highly as we do here in the U.S. It’s unlikely everyone will embrace Cook’s vision.

This isn’t to say Apple shouldn’t pursue digital wallets. Just because they would be hard to create doesn’t mean Apple can’t create them.2 And just because their adoption would face cultural obstacles doesn’t mean Apple can’t overcome them. It just means that turning Cook’s vision into reality is an incredibly daunting task. But if any company is up to the challenge, it’s Apple.

  1. And it is addressable. Apple could make its peer-to-peer transaction technology an open standard so that other companies can implement it on their platforms.
  2. In fact, Apple has a long history of doing what people previously thought couldn’t be done. The creation of the original iPhone is a great example of this.