The notion of using smartphones to make mobile payments is nothing new. Google Wallet launched all the way back in 2011. But Apple, in classic fashion, is joining the party late and may very well end up succeeding where many others have failed. In this regard, Apple Pay is in many ways classic Apple. They're not reinventing the wheel, they've just made some notable adjustments and are promising a smoother, safer, and more user friendly ride
It's easy to scoff at Apple Pay and cynically assert that many other companies have already been there and done that and failed. And truth be told, it remains to be seen if customers do, in fact, take to Apple Pay in droves. But for a variety of reasons listed below, Apple Pay is better positioned to succeed than any other mobile payments platform we've seen to date.
1. It's secure
For starters, Apple Pay has been designed to be incredibly safe and secure. User credit card information is never stored on Apple's servers nor does it reside on the iPhone. Instead of transmitting encrypted credit card data, Apple Pay instead transmits digital tokens to ensure that no sensitive and personal credit card information is ever actually shared with merchants. Importantly, tokens themselves are worthless and ultimately useless in the hands of hackers.
Equally as important, the reliability and effectiveness of Touch ID ensures that only designated individuals can authorize transactions. In this regard, the timing of Apple Pay couldn't have been positioned more perfectly. Over the past 12 months, millions of consumers have grown accustomed to using their fingerprint as the login for their iPhone. Today, the notion of using one's fingerprint to make mobile payments is a lot less daunting than it was even a few months ago.
Banks and credit card companies are excited about Apple Pay because it promises to lower the incidence of fraud. And as we've mentioned previously, it may very well be the safest way to make any type of credit card payment.
2. Apple has a huge head start
Apple already has over 800 million credit cards on file. This provides Apple with an absolutely huge go to market advantage that no other company can currently or has ever been able to match.
Apple's reservoir of 800+ million credit cards is a factoid that's been spouted so many times that it's almost easy to gloss over it and ignore how significant it really is. Convincing users to try out a new payment platform is no small task. Often times, the hardest part is just getting a consumer's credit card information in the first place. With Apple's cache of user credit cards already in place, it's magically able to bypass what for other companies would be a problematic bottleneck.
Apple doesn't need to convince you to upload your credit card and then try Apple Pay, they just need you to try Apple Pay. Just like that, a big mobile payments hurdle is relegated to the rear view mirror.
3. Merchants have to upgrade their POS machines by October 2015
A limiting factor to the potential success of Apple Pay lies in merchant adoption. Though Apple is touting that Apple Pay will be accepted at 220,000 merchant locations in the U.S., that's just a small drop in the bucket compared to the 9 million or so merchant locations located in the US. Some of the more advanced POS machines can cost upwards of a few hundred dollars and merchants content with the status quo may have no reason to upgrade. For now.
But come October 2015, all merchants who accept credit and debit cards will have to upgrade their POS machines to models that accept EMV credit cards. In the process, many merchants will likely upgrade to NFC compatible machines.
While merchants won't be punished outright for not upgrading, there's a strong incentive for them to do so as merchants who do not upgrade will have to bear the costs of fraud. Merchants who do upgrade will not be on the hook as liability in the instance of fraud will shift to the banks.
PandoDaily highlighted the October 2015 deadline a few weeks back:
As of October 2015, any merchants that do not support EMV credit cards – smart cards with integrated circuits that enable point of sale authentication and help prevent fraud – will be liable for the fraudulent use of counterfeit, lost, and stolen cards
4. Banks are putting their full weight and support behind Apple Pay
While many innovative payment apps and platforms attempt to work around large financial institutions, Apple instead chose to work closely with the nation's biggest banks. Further, because the Apple Pay process is extremely secure, banks stand to benefit from the success of Apple Pay because it will help lower the incidence of credit card fraud. In fact, its why Apple was able to extract what's rumored to be a .15% fee for each Apple Pay transaction.
Consequently, the public advertising push banks are making for Apple Pay is unique and unprecedented. A number of banks have prominently featured Apple Pay on their website landing pages recently. Additionally, some have started alerting customers via email about this great, new, secure, and easy way to conduct mobile transactions.
For instance, here's an email Bank of America sent out to customers a few weeks ago.
Over and above that, the support of banking institutions helps position Apple Pay as a legitimate, and more importantly, a safe way to pay for goods. In a similar vein, it's a good bet that once Apple Pay goes live, banks will help advertise Apple Pay in-store at hundreds of branches across the country. This is advertising that money can't buy because overt support from banking institutions lends Apple Pay more credibility. It's an authoritative endorsement and consumers will not only be more aware of Apple Pay's existence, they'll be more likely to give it a try.
It's not an overstatement to state that banks -- and the financial industry at large -- have never before been so unanimously behind a mobile payment platform that they themselves didn't create. And of course, this is all made possible because Apple isn't injecting themselves into the payment process, they're simply facilitating it.
5. Apple has clout, influence, and a willing user base
In getting Apple Pay off the ground, Apple was impressively able to wield its clout and influence to secure deals with all 3 major credit card networks and the top banking institutions in the U.S. Previous mobile payment efforts have been fragmented affairs that lacked the full support from all the major financial players.
Apple Pay is different.
As former credit card executive Tom Noyes astutely pointed out, "banks are focused on Apple because: #1 Apple can move the needle in adoption."
Further, because Apple operates at the high-end of the market, iPhone owners, on average, have more disposable income and will likely be more willing to use a platform like Apple Pay. Apple already has hundreds of millions of users who are accustomed to paying Apple for apps and all types of media content. To that end, the company has engendered a level of trust amongst many of its users that other companies would kill for. Users who would otherwise be completely disinterested in something like Google Wallet may be more inclined to give Apple Pay a spin.
6. Apple Pay is an intuitive and seamless process (so we hear)
Apple Pay hasn't gone live yet, but if the demos Tim Cook and company demoed on stage are accurate, the Apple Pay experience promises to be extremely quick and easy. Notably, initial hands-on reviews of Apple Pay have been universally positive, with The Verge calling it "remarkably smooth" and Slashgear labeling it "pretty darn easy" to use.
That's certainly encouraging, though the real measure of its ease of use will occur in the wild.
Challenges Ahead
The fact that Apple Pay is better positioned for success than other mobile payment platforms is in no way a guarantee that it will ultimately resonate with consumers. Apple Pay may very well be the safest and easiest way to make mobile payments but who's to say if consumers on a grand scale truly find using credit cards or toting around a wallet so burdensome in the first place.
It's also important to remember Apple Pay will be a slow and steady rollout. The feature only works on iPhone 6 models (until the Apple Watch launches) and, for the time being, will only be available in the U.S.
On the merchant side of the equation, Apple Pay will be supported at 220,000 merchant locations. That may seem like a big number, but the figure represents less than 3% of all merchant locations in the U.S.
The flip side is that a few of the merchant locations on board with Apple Pay are extremely high volume stores that serve tens of millions of consumers. So while Apple has a ways to go towards being accepted in more locations, its initial group of partners -- from McDonalds to Subway to Walgreens -- is subtly strategic. Apple Pay will be available in a number of nation-wide locations that handle insane levels of foot traffic and an astounding number of daily transactions. To that end, the 220,000 figure is arguably less important than the types of shops those 220,000 locations represent. Still, the figure will have to increase dramatically for Apple Pay to truly influence consumer shopping habits.
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