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Will Apple Pay Drive Mobile Payment Adoption?

Apple Pay Retail

Image by Apple Inc.

With almost 1.5 billion iPhone users around the world, will the Apple Pay platform be a game changer for mobile payments?  While consumers have a high awareness of and interest in mobile payments, overall adoption rates still needs to grow.  Security and privacy concerns are top reasons why consumers are not adopting, but mobile wallet vendors have also been unable to offer solutions that provide value-add beyond convenient payment.

At the time of their announcement, Apple listed the following merchants and apps that will integrate with Apple Pay: Bloomingdale’s, Disney, Groupon, Macy’s, Open Table, Sephora, Staples, Target, Walgreens, Duane Reade, and Whole Foods. However, Apple Pay is not a big change for most of these merchants, who already accept mobile payments such as Google Wallet.

There are also about 9 million merchants in the US alone that accept cash and credit card payments. Given the lack of mobile payments standardization in the retail industry, can a big enough portion of these merchants be converted to make mobile payments – and Apple Pay in particular – truly ubiquitous?

Can Apple Pay Restore Consumer Confidence In Mobile Payments?

In September 2014, Home Depot announced they had suffered a security breach of their payment systems.  Analysts say that it could dwarf Target’s breach in 2013, which affected some 40 million payment cards and 70 million customer records.  In the US, Target’s breach resulted in banks issuing new payment cards to all customers in August as they grappled with the best way to regain consumer confidence.  Almost a year later, Target is still struggling to convince consumers to trust the security of their data and return to their stores.

Perhaps the biggest upside to Apple Pay is in its use of a secure element to encrypt your payment info so that credit/debit card information is not stored.  Consumers use a digital token that is unique to their device to pay, and the token becomes meaningless after the transaction is complete.  Apple Pay also gives then the ability to suspend payments if the device is lost or stolen.  This added level of security is a big plus for wary consumers in today’s retail environment.

Apple has also committed to not collecting users’ transaction data, saying on their website:

Apple doesn’t save your transaction information. With Apple Pay, your payments are private. Apple doesn’t store the details of your transactions so they can’t be tied back to you.  Your most recent purchases are kept in Passbook for your convenience, but that’s as far as it goes.

Apple’s built-in security measures mean more challenges for hackers, and more peace of mind for consumers. 

What Does Apple Pay Mean for the Future of Retail?

Apple Pay will work with a simple swipe of your iPhone or Apple Watch which is frequently in (or around) the palm of your hand.  While it currently relies on payments from traditional methods like credit cards and bank accounts, it is easy to see Apple expanding the service to allow alternate forms of payment like Bitcoin.  Any time you can make it easy for consumers to pay the way they want, you build loyalty.  Apple Pay is poised to expand into new non-traditional forms of payment.

Starbuck’s app has had success in part because of the gamification that ties payment and loyalty with fun.  We expect the same from Apple Pay. With over 1 million apps in the iTunes app store and total downloads of over 60 billion, adding Apple Pay to these apps is an obvious extension.  Whether it is for initial purchase or for upgrades within an app, we expect to see Apple Pay across the store.  With so many merchants offering proprietary apps, the integration of an Apple Pay checkout button becomes an easy way to combine payment and loyalty.

Apple is rumoured to be charging the banks to participate in Apple Pay.  Of course, the banks make huge profits on the interchange fees paid for consumer use of credit cards. The question is whether Apple will choose to refund part of the bank fees they charge to merchants  to encourage merchant participation, in which case the financial benefits to merchants could be significant.

As one of the top players in the global mobile space, Apple’s payments platform is well positioned to revolutionize the retail industry. Aside from the security and financial incentives, retailers can expect their customers’ existing familiarity with Apple products to drive mobile payment adoption, which makes Apple Pay a platform to watch out for.

Update (9/11/2014): Wal-Mart has just announced that they will not join Apple Pay. Wal-Mart will use another mobile payment platform called CurrentC, which does not use near field communication (NFC) and allows customers to load currency into the app directly instead of using the app like a credit card. While Apple Pay carries its own list of financial incentives, the avoidance of credit card usage fees altogether makes CurrentC attractive to retailers and merchants. As an enormous retailer with large brand recognition and customer loyalty, Wal-Mart’s support of CurrentC could mean that Apple Pay will soon be faced with serious competition.

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