If you’ve been anywhere near a TV or computer in the past month, you’ve probably heard that Apple is getting into the payment business with the launch of Apple Pay.
But though it generated far less buzz in the media, I’m far more interested in another iconic brand name who made a similar move last year. And I believe the implications, at least for low-income people, are far greater than the latest from Cupertino.
The company in question is Grupo Bimbo, and though its name may hold other connotations for English-speakers, its business is bread. As one of the largest baking companies in the world, Grupo Bimbo sells over 10,000 products and more than 100 brands in 22 countries in North and South America, Asia and Europe. Particularly strong in Latin America, the Bimbo brand is arguably as ubiquitous and respected in Mexico as the Apple brand is in the U.S., with over 700,000 small merchants across the country carrying Bimbo products.
So when it announced last fall that it was partnering with Visa and Blue Label Telecoms (a leading provider of prepaid airtime) to expand debit and credit card payments to its merchant network in Mexico, I was surprised and disappointed that this landmark and newsworthy move didn’t create more press than the smattering of media mentions it received.
Payment cards have become increasingly common in Mexico, with approximately 640,000 retail locations accepting them – and recent regulatory reforms could give this progress further momentum. By mobilizing its large distribution network, along with public (and merchant) trust in its brand, Bimbo is uniquely positioned to expand the acceptance of electronic payments to Mexico’s vast number of “mom and pop” retailers, which have traditionally operated only in cash.
Since the announcement, the company has been rolling out the installation of mobile payment terminals at these merchants, allowing them to accept Visa and non-Visa card payments, and to offer airtime top-up and bill payment services. With some analysts predicting that Visa will look to replicate this process in other cash economies around the world, and that other companies with large distribution networks might follow Bimbo’s lead, their partnership in Mexico could end up being a significant milestone in the movement toward a cashless world.
But after this week’s developments on the domestic payments front, in which major retailers began shutting out Apple Pay in their stores, I think it’s interesting to look at the parallels between Apple and Bimbo’s respective moves, and the factors that could impact their success.
Both companies have allied with credit card companies, with the dominant players letting Apple hitch a ride on their payment rails, and share a small slice of transaction fees, largely because they didn’t want to be left behind in America’s long-anticipated transition to mobile payments. Apple, with its unrivaled ability to popularize new technologies and its vast storehouse of customer payment data, seems uniquely suited to spark this tectonic shift in the way people pay. If it succeeds, companies in the existing payment system will benefit not only from a new stream of transactions and clients, but by potential reductions in losses to fraud through Apple Pay’s much-touted security features. Apple’s success could also forestall the emergence of more disruptive digital payment alternatives, like cryptocurrencies, that could pose a bigger risk to these companies’ dominance.
I don’t think Apple Pay will succeed unless it can become available at more than the very limited number of American merchants that currently accept it – and that’s where the challenges lie. As some analysts have pointed out, Apple doesn’t offer much benefit to merchants, other than the opportunity to please their iPhone 6-using customers. Many merchants will also need to invest in installing and maintaining the hardware that’s required to perform contactless payments via Apple Pay and other mobile wallets. What’s more, Apple doesn’t provide merchants with any data on their customers’ purchasing habits.
Meanwhile a consortium of powerful retailers (including the companies in this week’s merchant revolt) are about to release their own mobile payment product, CurrentC, which bypasses credit cards entirely, potentially saving merchants part of the approximately $66 billion they pay each year in fees. In spite of these obstacles, Apple seems to be hoping that the elegant simplicity and brand cachet of Apple Pay (and its unparalleled marketing machine) will generate enough momentum to ultimately force reluctant retailers onto the bandwagon.
While it doesn’t face nearly this level of resistance, Bimbo has taken a more hands-on approach. To handle the unique challenges of getting Mexican microbusinesses to adopt a new payment technology, the company has reportedly dispatched 1000 technicians – who arrive on the bread trucks themselves – to set up the machines and train shop owners. Though Bimbo charges a modest yearly and daily fee (about $45 and $0.11 respectively), in a country with strong movement toward payment cards, the value proposition seems clear for merchants – especially since the only competing payment system is cash itself.
If Bimbo’s model succeeds, it could further popularize electronic payments in Mexico and other cash-dominant countries, while also giving unbanked merchants an incentive to join the formal financial system. Momentous as Apple Pay could be for mobile payments in the U.S., I’m hoping to hear more about a silent payments revolution south of the border.