Apple Pay is now responsible for $2 of every $3 spent using contactless payments across Mastercard, Visa, and American Express. Since its introduction in October 2014, Apple Pay has rapidly expanded to include some 700,000 merchants, with nearly 40% of major U.S. retailers planning to support the service by the end of 2016. What consumer needs are being met by Apple Pay? What’s driving Apple Pay’s explosive growth and adoption, and what can retailers learn from the success of the service?
Customers Need to Feel Secure
After the retail data breaches in 2013 and 2014, consumers are demanding that retailers provide more secure storage and handling of their personal information. Apple Pay’s platform works using near field communication technology, which provides a secure element that makes data theft difficult, but also takes it a step further with tokenization, which creates a unique and temporary token in place of payment transactional information such as credit card data. This supports the customer need for transparency, as Apple Pay does not collect or share user data with retailers. While this comes at a cost (less customer data collected and passed onto the retailer), consumers come first and the most successful services understand that having a clear value proposition equals a more loyal customer base.
The demand for heightened security is becoming increasingly recognized. Visa Europe’s new tokenization service, which aims to protect customers that use mobile payment systems against fraud and data theft, is paving the way not only for Apple Pay in Europe, but tokenization as an industry standard. As one of the most important mobile payments security developments in recent times, the rollout of tokenization in Europe may mean that we’ll soon see tokenization in the U.S. given the importance of security there, followed by Canadian retailers and the rest of the world within the next 3-5 years.
Millennials Will Lead the Pack in the Adoption and Development of New Retail Technology
We all know that tech enthusiasts are the first adopters of new technology such as Apple Pay, and these same enthusiasts are the Millennial shoppers that will represent nearly 30% of all retail sales by 2020. The mobile payments industry has been changing in the past ten years, with many players but no one clear winner. Existing payment options, such as credit or debit cards, aren’t easy to disrupt, but Apple Pay may be the platform to change everything.
New retail technology will encourage Millennials to test the product, but great design and functionality, as Apple Pay has exhibited, will retain them after the novelty has worn off. Millennials will drive the adoption and development of this technology. If Generation Z are the digital natives that are born into a world where what we see as innovative today is commonplace, Millennials are the last wave of consumers that will influence how new technology gets shaped for the future. It is the responsibility of retailers to meet their needs, listen to feedback, and deliver on what they want.
Your Product Must Add Convenience and Break Through the Noise
Apple Pay is simple to use: simply hold the iPhone or iPad to a payment station and authenticate your identity. Apple Pay’s Touch ID allows customers to quickly do this through fingerprint recognition, which is a more seamless experience compared to other mobile payments platforms like Google Wallet, which requires you to unlock the phone first by entering a PIN, or Current C, which requires the customer to go through a lengthy transaction process by first opening the app, then scanning the code, and waiting for confirmation. Apple Pay’s ease-of-use meets the customer need for convenience. To add a card to Apple Pay, customers can use the iPhone’s iSight camera to quickly capture the relevant information.
As we’ve seen with the increase of retail pick-up and click-and-collect programs, customers want added convenience wherever possible. But it’s not just convenience that is engaging customers. Apple Pay’s success can be compared to the success of Starbucks’ mobile payments app, which is one of the most successful loyalty programs in North America. Both Apple Pay and Starbucks’ mobile app are simple to use, but also extremely ubiquitous. A Starbucks location is just around every corner, and the blind loyalty that iPhone users feel towards their mobile devices and Apple’s brand recognition means that Apple Pay is always top of mind. It is the combination of added convenience and visibility that will grow your customer base.
What Does This Mean for Retailers?
Apple Pay is driving the mobile payments market. U.S. mobile payments have grown significantly since 2010, and are expected to bloom to $142 billion by 2019. During this time, acceptance of NFC mobile payments among retailers and merchant locations will increase. New technological developments, such as tokenization, will become industry standards as leaders like Apple Pay continuously raise the bar.
Retailers must recognize that it is no longer enough to follow innovation as it happens. To be on the pulse of what customers want, retailers should examine the best-in-class players and aim to meet and exceed their customers’ needs. Sometimes, and certainly in the case of Apple Pay, this means compromising and exchanging what is good for the retailer for what is good for the consumer. Competing platforms like Current C may not charge retailers credit card fees and allows retailers to collect data on customers, but the success of a mobile payment platform is ultimately up to the customer to decide, not the retailer.