Apple Isn't Disrupting Credit Card Companies, It's Giving Them A Huge Gift

The announcement of Apple's new Apple Pay service marks another big gun - the biggest, probably - entering the mobile payments space. Those expecting Apple to disrupt the tri-opoly of MasterCard, Visa and American Express will be sorely disappointed. While tech startups in the mobile payments business talk frequently about replacing the traditional banking and financial services industry, Apple probably sees that as a fight that's simply not worth having.

Apple has teamed up with all three card issuers, as well as Bank of America, Capital One Bank, Chase, Citi and Wells Fargo - the six major card-issuing banks in the U.S., representing 83% of credit card purchase volume in the country. Their support for Apple Pay suggests the package is likely to be complementary to, rather than in competition with, their business models.

Forrester Research forecasts that the mobile payments market will be worth some $90 billion by 2017. Given the ubiquity of Apple products in the West, it occupies an almost unique position from which to gain market share quickly.

But why not go it alone? Instead of using credit and debit cards to fuel Apple Pay, why not simply link Apple Pay directly to checking accounts, the way PayPal does? That would be a true disruption of the credit card business.

Moreover, with some $164.5 billion in cash or cash equivalents on its balance sheet as at the end of June, it has more than enough ready capital to provide the necessary confidence to make a bespoke payment system work.

One answer is that the shift to mobile payments may be a gradual one. In a survey released by the Federal Reserve in March, only 17% of mobile phone users report that they made a mobile payment in the past 12 months. That's up a meager 2% from 2012.

At this stage, having the ability to pay using your iPhone might be a nice additional feature but it's unlikely (yet) to be the major selling point. Instead, despite the fanfare, Apple Pay may be more of a transitional stage designed to keep potential mobile competitors out while the company waits for market to build.

This will have been top-of-mind for Apple executives with China's Alibaba Group preparing for what could be the largest IPO in U.S. history. The firm is reportedly looking to regain a stake in its e-commerce arm Alipay, spun off in 2011, after it processed some $519 billion-worth of payments in 2013.

Unlike Apple, Alipay has gone toe-to-toe with large Chinese banks over control of payment services. Market research firm iResearch estimates that Alipay has over 400 million users and is one of the dominant players in mobile payments in China.

With an established player in the space poised to enter the U.S. market, Apple may have felt that presenting a united front would be advantageous rather than starting a war that could leave the door open to new entrants.

This may be bad news for retailers in the short term, as they will have to continue paying transaction fees for credit card payments. And for consumers the popularity of the service will rely on convenience rather than cost. But success in a competitive space means picking the right battles, and Apple has clearly decided that it wants to fight with the credit card companies, not against them.