Odysseas Papadimitriou
While the “year of Apple Pay,” as Apple CEO Tim Cook dubbed 2015, still has a ways to go, the product’s first anniversary is rapidly approaching. And, considering Android Pay’s recent unveiling, it seems that its competitors are, as well. So, as we prepare to celebrate, the question is: How are things going?
The Good News: Building A Lead And Sticking To The Plan
More Competition Is Good News. Some might consider events like Google Wallet completing its transformation to Android Pay and Samsung throwing its hat into the mobile payments ring to be bad news for the months’-old Apple Pay. But it’s actually great news.
More major players placing bets on the wallet’s extinction will turn up the heat on merchants to add payment terminals that support the technology and expedite consumer education. With the necessary infrastructure in place, Apple can simply rely on the popularity of its phones to do the rest. How are Blackberry and the Microsoft Zune doing, by the way?
New iPhone Sales Cycle. Last October, when Apple Pay was released, only about 12 percent of iPhone users had models compatible with the service. That figure has increased to roughly 47 percent, and is expected to continue spiking thanks to the September 25 release of the iPhone 6s and the company’s newly unveiled upgrade incentives that promise to maximize 6-series penetration. More people possessing the ability to use Apple Pay obviously is good news.
Laying The Foundation For Micro-Merchant Adoption Growth. Commerce has become increasingly populist in recent years, as the ubiquity of intuitive technology and a recession-fueled entrepreneurship bubble have combined to create a new breed of single-person, smartphone-based businesses.
Apple’s recently announced partnership with PayAnywhere to create a mobile card reader that supports contactless payments reflects the company’s recognition of this important trend, and infuses a dose of competition into the space. Square also is expected to release an Apple Pay-compatible reader shortly after Apple’s version. Having more of these readers on the streets, no matter who makes them, will reduce barriers to Apple Pay adoption.
More Card Issuers Participating. In recent months, Apple has announced a steady stream of new banks and credit unions that will support Apple Pay: 59 in May, 12 in June, 35 in July and 64 in August. Now, Apple Pay has more than 400 financial institution partners overall. Some — including Wells Fargo, Bank of America and Capital One — are even doing the product’s advertising for it. None of that is bad news.
“Strong” Initial Adoption. The extent to which customers have taken to Apple Pay depends on who you ask. If it’s Ed McLaughlin, chief emerging payments officer at MasterCard, he’ll tell you that, “We are seeing strong uptake. But these technologies will take time to grow.” Considering that MasterCard accounts for 23 percent of the credit card market’s purchase volume and 30 percent when it comes to debit cards, this is an opinion that merits attention.
The Bad News: For Many, The Jury Is Still Out
Users Can’t Keep It Up. As everyday consumers have joined early adopters in enjoying Apple Pay access, usage rates have declined. The share of iPhone 6 users who say they use Apple Pay “every chance I get” has fallen from 48 percent in March to 33 percent in June, according to surveys by InfoScout and PYMNTS.com. What’s more, the percentage of people who say they “rarely consider” using Apple Pay increased from 17 percent to 23 percent over that same time period.
Some may ascribe this to the natural rhythms of a product launch, but a continuation of this brief trend would undoubtedly lead to more fervent calls for alarm.
Big-Name Merchant Hold-Outs. There’s an interesting competitive dynamic emerging in the mobile payments space. While most of Apple Pay’s competitors are welcome, because they bring infrastructure that Apple Pay can leverage, CurrentC is a problematic exception. Why? Because it’s backed by the likes of Walmart, Best Buy, CVS and Lowe’s — retail titans that are exercising their power to throw a wrench into Apple Pay adoption for millions of iPhone users by not accepting it in their stores. Simply having to think about whether or not you can use your phone as payment at a given store keeps physical wallets in the game.
Little European Penetration: The European Central Bank Credit caps debit and credit card interchange fees — payments made by card issuers to card networks for facilitating electronic purchases — at roughly 0.5 percent. When you consider that Apple Pay charges 0.15 percent of each transaction, it’s clear why there are concerns among the traditional parties as to whether they will get their fill.
To be fair, Apple Pay has been embraced in many respects across the pond. In the U.K., for example, you can use the service to pay for public transportation. But something has to give in the interchange fee battle before Apple Pay can truly take off on the continent.
The Fundamental Problem Still Remains: The absolute biggest roadblock facing Apple Pay and its mobile payment brethren has yet to be overcome. If we do away with our wallets in favor of our phones, our ability to pay for things is still at the mercy of the battery. And, considering how often most of us find ourselves out and about without a charge, especially when unforeseen events come into play, this is still a far too risky gamble to make. As long as people need physical credit cards, debit cards, etc., as backup, Apple Pay’s ultimate vision cannot be realized.
The Competitive Landscape: How Major Mobile Wallets Compare
Apple Pay may be the biggest trailblazer in the space, but it certainly doesn’t have a mobile payments monopoly. So, to truly understand the product’s position in the market, one must consider it within the context of its competitors. The table below compares the most promising mobile wallets based on factors essential to consumer adoption and long-term success.
| Apple Pay | Android Pay | CurrentC | Samsung Pay | |
| Compatible Phones |
iPhone 6, 6 Plus, 6s and 6s Plus
|
Devices with Android 4.4 or higher | All iOS and Android devices | Galaxy S6, S6 Edge, S6 Edge Plus and Note 5 |
| Point-of-Sale Usability | Simple: hover phone over payment terminal and verify with either fingerprint or passcode | Simple: hover phone over payment terminal and enter PIN, password or pattern (fingerprint verification available on new devices) | Involved: unlock phone, open app, log in to app and either scan a bar code or tap the phone on a BLE beacon | Simple: unlock phone, hover over contactless payment terminal or hold against magnetic stripe reader and verify with fingerprint |
| Merchant Acceptance | 1+ million U.S. locations | 1+ million U.S. locations | 110,000 U.S. locations (currently available only in Columbus test market) | Nearly anywhere that accepts plastic |
| Bank Participation | High: 400+ credit and debit card issuers | Moderate: 11 major credit and debit card issuers | Low: nearly all checking accounts as well as store cards and gift cards from affiliated retailers | Low: only 4 major general-purpose credit card issuers (Bank of America, Citi, American Express and U.S. Bank) and store cards issued by Synchrony Financial |
| User Privacy | High: users are anonymous to merchants and Apple does not store card numbers or personally identifying transaction data | Moderate: users are anonymous to merchants but Google stores card information in the cloud | Low : CurrentC’s privacy policy enables it to collect personally identifying information about users and their transactions; information collected by CurrentC is not sold | High: users are anonymous to merchants and Samsung does not store card numbers or personally identifying transaction data |
| Security | High: card information is replaced with a unique Device Identification Number, which is stored in a secure element on the device and transmitted along with a one-time transaction code via NFC to complete purchases; full card numbers are never stored on Apple’s servers | Moderate: card information is tokenized for transactions and transmitted via NFC but uses Host Card Emulation for encryption and storage in the cloud | Moderate: No payment information is stored in the app or on the device; account information is tokenized and stored in the cloud; transactions are completed in the cloud using a dynamic QR code, rather than passing account information through the POS | High: card information is encrypted, stored in a trusted execution environment on the device, tokenized for each transaction and transmitted via either NFC or MST
|
Note: The information in this table was reviewed by Apple, CurrentC and Samsung. Google did not respond within the timeframe provided.Services may be compatible with devices other than phones, such as tablets and smart watches, but we focused on phones because they will be the primary mode of use.
Conclusion
Apple Pay has a few notable weaknesses, but they are ultimately overshadowed by its many significant strengths. And while it might not end up dominating the market to quite the same extent as iPhones do, it’s certainly clear that Apple Pay is here to stay.
Mobile payment technology appears to be a tide capable of lifting at least a few of the best-positioned boats, after all. In-store mobile payments are expected to post a 1,000 percent year-over-year increase in 2015, according to Deloitte, with Juniper Research projecting a 100 percent increase for mobile payments overall from 2015 through 2016.
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