Judging from most of the coverage of Apple AAPL +1.46% Pay, the mobile wallet that launches Monday, you’d think Apple has already revolutionized the $4 trillion U.S. payments market before anyone has even used it in the wild.
It does look pretty slick, at least based on Apple’s own demonstration at the Sept. 9 event where it also debuted two iPhone 6 models and the Apple Watch. All that’s required to buy a burger and fries at McDonald's MCD +1.26% or a tank of gas at Chevron CVX +0.67%, Apple CEO Tim Cook promised, is to hold an iPhone near a wireless reader at the checkout counter and press a thumb on the home button to activate Apple’s Touch ID fingerprint sensor. In under 10 seconds, you’re out the door.
That would be a stark contrast to today, when using a mobile wallet from Google GOOGL -2.44%, PayPal, and others requires unlocking a phone, typing in a number, checking into a store, and various other steps–including waiting to see if it even works and trying another time or two when it doesn’t. Many merchants don’t even have checkout people who can tell you how it works. In several attempts in the past week or so, I went two for four: Google Wallet worked at Peet’s and Walgreen’s, though only after a couple of attempts, PayPal didn’t work at a local cafe where it was supposed to, and CVS didn’t work with either one. Even the clerk there didn’t know how the reader at the checkout counter worked.
applepay
But based on research into rival wallets and interviews with merchants, payment tech firms, and payments experts, it’s apparent that Apple Pay is far from a guaranteed success–at least if you judge success on what Apple CEO Tim Cook promised last month: “Apple Pay will forever change the way all of us buy things.” Here’s why there’s good reason to view Apple Pay with skepticism:
* You can’t use Apple Pay unless you buy an iPhone 6 or 6 Plus. Apple uses a method to send data from a phone to a checkout reader called Near Field Communication, which is used in some 220,000 retail locations already for other wallets and new credit cards that use a chip to store information. Previous iPhone models didn’t have NFC, so you can’t use them (except for iPhone 5 models along with an Apple Watch, but not until next year). So not only is Apple Pay limited to iPhone users, it’s limited only to iPhone 6 buyers, who number at least 10 million so far and perhaps double that by the end of December.
That may well be enough to jumpstart Apple Pay usage and finally make the long-awaited mobile wallet a reality–for iPhone users. But no store will want to turn away users of Android or other phones who see the iPhone owner in front of them in line whisk through with a tap. “Merchants won’t want the PR hit of discriminating against Android users,” says Richard Crone, CEO of payments advisory firm Crone Consulting, who notes that there have been 50 million downloads of branded merchant apps and 90 million active banking app installs. “This will cause them to get religion quick around their own mobile wallet.”
* Cash and credit cards just aren’t that hard to use. Everyone takes cash, and most places of any size accept credit cards. Credit cards also survive getting wet or hot or sat on much better than phones. As payments expert Bill Maurer, dean of the School of Social Sciences at the University of California at Irvine, said in my Apple Pay story, “All of these mobile wallets are looking for a problem to solve.”
What about security? Yes, by all accounts, Apple Pay is more secure than credit cards. But even after massive security breaches at the likes of Target and Home Depot, consumers’ limited liability for fraud losses means better security probably won’t be appealing enough to drive usage of Apple Pay.
* You can use Apple Pay at only a limited number of retail stores. Cook touted the 220,000 U.S. retail outlets that will accept Apple Pay because they already have NFC readers. That may sound like a lot, but it’s a very small percentage of the 6 million or more out there. Even some of those that have said they’re “supporting” Apple Pay are a little fuzzy on what that means. Starbucks SBUX +1.21%, which has its own mobile app that allows quick payment with a phone, will only allow refills to its own payment service through Apple Pay but won’t accept the Apple Pay service in its full glory. Which means …
* You’re going to have to carry around your credit cards and even cash anyway. That dream of needing only your phone to pay for anything? It will remain just that. The local food truck may or may not accept a credit card, and forget about paying most of the vendors at the farmer’s market with anything but cash.
* Apple Pay may not actually be so much quicker than swiping a credit card. Tim Cook showed a video that made a big deal of the hassle of fishing out a credit card from an overstuffed purse or wallet. Really? I don’t know about you, but I have my card in hand before the clerk has rung up the first item. When you’re checking out with multiple items such as at a grocery store, you can swipe and have the card back in your wallet well before everything has been rung up.
* You’re already using some merchant wallets, and you’re not likely to dump them if they work. The Starbucks app works great, for instance, even though it uses a rather dated QR code to approve the payment. So what? You may get a free drink or an offer, and you can always find where the nearest store is. The only way Apple Pay can truly change the way we all pay for things is to offer a platform for merchants to offer whatever additional services before, at, or after the point of sale that they think work for their specific customers. ”They have to offer more to the merchant,” says Mary Monahan, mobile research director at Javelin Strategy & Research.
But since Apple hasn’t announced plans to do that, Apple Pay may end up spurring more merchants to get off their duffs and create their own payment apps, says Crone. The merchant group MCX, whose members include little outfits like Wal-Mart and Target, plans to have wallet apps for its merchants ready sometime next year.
* Apple Pay doesn’t do much beyond what you can already do with a credit card–or even what you can do with other mobile wallets. One of the reasons payments experts say Apple Pay looks promising is that it doesn’t really disrupt anything in the way we pay for stuff, let alone take on the financial industry. It uses your existing credit or debit cards, and you pay pretty much the same way you do with a card, particularly the new chip cards you’re starting to get from your bank.
That probably is a smart strategy for Apple for now because it means it’s a partner of merchants and banks rather than an adversary. But it also means that Apple Pay isn’t really all that innovative. Indeed, Apple Pay right now doesn’t even include some of the non-payment features that account for the popularity of the few mobile payment apps out there: loyalty programs, offers, and discounts. ”If all you’re doing is transferring the [payment] process to the phone, then there’s no benefit,” says Matt de Ganon, senior VP of product and commerce for Softcard, the joint venture of Verizon, AT&T, and T-Mobile that’s pushing its own wallet. “You need to wrap that payment with a lot of other capabilities,” such as coupons and a list of your other recent transactions.
To cite another example, PayPal’s app lets you order ahead at stores that use it so you can skip lines, and you can pay a restaurant check without having to wait for the waiter to bring it. Hill Ferguson, PayPal’s senior VP and chief product officer, concedes that none of the mobile wallet players has cracked mobile payments in retail stores. “We’re talking about changing massively ingrained behavior,” he says. “You can’t do that unless you’re solving a massive pain point.” Or better yet, several of them.
So the bottom line is that no matter how cool it will be to wave your shiny new iPhone to pay at the checkout stand, Apple has a slog ahead of it to become a new payment standard, if it ever gets there. Says Monahan: ”We won’t know for years whether Apple Pay will be successful.”
It does look pretty slick, at least based on Apple’s own demonstration at the Sept. 9 event where it also debuted two iPhone 6 models and the Apple Watch. All that’s required to buy a burger and fries at McDonald's MCD +1.26% or a tank of gas at Chevron CVX +0.67%, Apple CEO Tim Cook promised, is to hold an iPhone near a wireless reader at the checkout counter and press a thumb on the home button to activate Apple’s Touch ID fingerprint sensor. In under 10 seconds, you’re out the door.
That would be a stark contrast to today, when using a mobile wallet from Google GOOGL -2.44%, PayPal, and others requires unlocking a phone, typing in a number, checking into a store, and various other steps–including waiting to see if it even works and trying another time or two when it doesn’t. Many merchants don’t even have checkout people who can tell you how it works. In several attempts in the past week or so, I went two for four: Google Wallet worked at Peet’s and Walgreen’s, though only after a couple of attempts, PayPal didn’t work at a local cafe where it was supposed to, and CVS didn’t work with either one. Even the clerk there didn’t know how the reader at the checkout counter worked.
applepay
But based on research into rival wallets and interviews with merchants, payment tech firms, and payments experts, it’s apparent that Apple Pay is far from a guaranteed success–at least if you judge success on what Apple CEO Tim Cook promised last month: “Apple Pay will forever change the way all of us buy things.” Here’s why there’s good reason to view Apple Pay with skepticism:
* You can’t use Apple Pay unless you buy an iPhone 6 or 6 Plus. Apple uses a method to send data from a phone to a checkout reader called Near Field Communication, which is used in some 220,000 retail locations already for other wallets and new credit cards that use a chip to store information. Previous iPhone models didn’t have NFC, so you can’t use them (except for iPhone 5 models along with an Apple Watch, but not until next year). So not only is Apple Pay limited to iPhone users, it’s limited only to iPhone 6 buyers, who number at least 10 million so far and perhaps double that by the end of December.
That may well be enough to jumpstart Apple Pay usage and finally make the long-awaited mobile wallet a reality–for iPhone users. But no store will want to turn away users of Android or other phones who see the iPhone owner in front of them in line whisk through with a tap. “Merchants won’t want the PR hit of discriminating against Android users,” says Richard Crone, CEO of payments advisory firm Crone Consulting, who notes that there have been 50 million downloads of branded merchant apps and 90 million active banking app installs. “This will cause them to get religion quick around their own mobile wallet.”
* Cash and credit cards just aren’t that hard to use. Everyone takes cash, and most places of any size accept credit cards. Credit cards also survive getting wet or hot or sat on much better than phones. As payments expert Bill Maurer, dean of the School of Social Sciences at the University of California at Irvine, said in my Apple Pay story, “All of these mobile wallets are looking for a problem to solve.”
What about security? Yes, by all accounts, Apple Pay is more secure than credit cards. But even after massive security breaches at the likes of Target and Home Depot, consumers’ limited liability for fraud losses means better security probably won’t be appealing enough to drive usage of Apple Pay.
* You can use Apple Pay at only a limited number of retail stores. Cook touted the 220,000 U.S. retail outlets that will accept Apple Pay because they already have NFC readers. That may sound like a lot, but it’s a very small percentage of the 6 million or more out there. Even some of those that have said they’re “supporting” Apple Pay are a little fuzzy on what that means. Starbucks SBUX +1.21%, which has its own mobile app that allows quick payment with a phone, will only allow refills to its own payment service through Apple Pay but won’t accept the Apple Pay service in its full glory. Which means …
* You’re going to have to carry around your credit cards and even cash anyway. That dream of needing only your phone to pay for anything? It will remain just that. The local food truck may or may not accept a credit card, and forget about paying most of the vendors at the farmer’s market with anything but cash.
* Apple Pay may not actually be so much quicker than swiping a credit card. Tim Cook showed a video that made a big deal of the hassle of fishing out a credit card from an overstuffed purse or wallet. Really? I don’t know about you, but I have my card in hand before the clerk has rung up the first item. When you’re checking out with multiple items such as at a grocery store, you can swipe and have the card back in your wallet well before everything has been rung up.
* You’re already using some merchant wallets, and you’re not likely to dump them if they work. The Starbucks app works great, for instance, even though it uses a rather dated QR code to approve the payment. So what? You may get a free drink or an offer, and you can always find where the nearest store is. The only way Apple Pay can truly change the way we all pay for things is to offer a platform for merchants to offer whatever additional services before, at, or after the point of sale that they think work for their specific customers. ”They have to offer more to the merchant,” says Mary Monahan, mobile research director at Javelin Strategy & Research.
But since Apple hasn’t announced plans to do that, Apple Pay may end up spurring more merchants to get off their duffs and create their own payment apps, says Crone. The merchant group MCX, whose members include little outfits like Wal-Mart and Target, plans to have wallet apps for its merchants ready sometime next year.
* Apple Pay doesn’t do much beyond what you can already do with a credit card–or even what you can do with other mobile wallets. One of the reasons payments experts say Apple Pay looks promising is that it doesn’t really disrupt anything in the way we pay for stuff, let alone take on the financial industry. It uses your existing credit or debit cards, and you pay pretty much the same way you do with a card, particularly the new chip cards you’re starting to get from your bank.
That probably is a smart strategy for Apple for now because it means it’s a partner of merchants and banks rather than an adversary. But it also means that Apple Pay isn’t really all that innovative. Indeed, Apple Pay right now doesn’t even include some of the non-payment features that account for the popularity of the few mobile payment apps out there: loyalty programs, offers, and discounts. ”If all you’re doing is transferring the [payment] process to the phone, then there’s no benefit,” says Matt de Ganon, senior VP of product and commerce for Softcard, the joint venture of Verizon, AT&T, and T-Mobile that’s pushing its own wallet. “You need to wrap that payment with a lot of other capabilities,” such as coupons and a list of your other recent transactions.
To cite another example, PayPal’s app lets you order ahead at stores that use it so you can skip lines, and you can pay a restaurant check without having to wait for the waiter to bring it. Hill Ferguson, PayPal’s senior VP and chief product officer, concedes that none of the mobile wallet players has cracked mobile payments in retail stores. “We’re talking about changing massively ingrained behavior,” he says. “You can’t do that unless you’re solving a massive pain point.” Or better yet, several of them.
So the bottom line is that no matter how cool it will be to wave your shiny new iPhone to pay at the checkout stand, Apple has a slog ahead of it to become a new payment standard, if it ever gets there. Says Monahan: ”We won’t know for years whether Apple Pay will be successful.”
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