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Make or break: What will Apple Pay mean for mobile payments?

12th Sep 2014
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An iPhone announcement may not spark the imagination like it used to, but in amongst Tim Cook’s promises of screen size increases, battery life enhancements and the exciting news that it can connect to a watch that (shock horror) tells the time, came an intriguing development in the contactless payment space: the launch of Apple Pay.

Mobile has long been heralded as the payment method to supersede the good old plastic card, yet as Neosperience so aptly explains, despite our credit and debit cards, with their magnetic stripe and exposed numbers being “easy to compromise [and] as outdated as VHS videotapes”, the switch to mobile wallet technology has “remained elusive” and the consumer uptake has been disappointing.

That’s where Apple comes in. Plenty of big brands have tried to force a sea change in the mobile payments space, yet plenty have underwhelmed. Is Apple likely to be any different? Can the brand that so famously transformed the MP3 and smartphone markets (to name just a few) do the same for mobile payments? 

“Naysayers may say that Google Wallet hasn’t made a big impact [so why should Apply Pay?], but the reason why Apple is different is twofold," says Viv Craske, head of planning and digital, Live & Breathe.

“Firstly, Apple is one set of products – not hundreds of different ones of dissimilar quality like the Android platform that Google Wallet currently sits on. The design and style ethos of Apple means that its products are bought by those with a higher than average income and those people already download more and spend more on apps.

“Secondly, Apple has a strong history of going into stagnant markets and re-vamping the business model, e.g. turning illegal downloading into a successful paid digital download platform at scale. With a high proportion (83%) of US banks on board with Apple Pay as well as key on- and off-line retailers, it would seem that retailers and financial partners have confidence in Apple Pay becoming a leader in mobile payment.”

Merchant interest

Craske’s points are thought-provoking, but the suggestion that Apple Pay fits into a suite of products adored by those with a higher income may yet provide a barrier to adoption for the masses. Another issue could be the fact that bricks-and-mortar merchants are, by the majority, failing to see the benefits of investing in contactless payment tools for their customers to take advantage of.

“For merchants, the outlook is less certain and there remain more questions than answers right now,” says Souheil Badran, senior vice president and general manager for Digital River World Payments.

“The payments market has been inundated with new wallets and technologies in recent years and, with no clear winner among consumers, many merchants have found it difficult to decide what payment offerings to invest in, and when. However, if Apple can succeed in this space, and offer a ubiquitous solution, it could help simplify the landscape for many merchants. Ultimately, long-term prospects will depend on how it will work with existing payment technologies and, of course, user adoption.”

John Gessau, mobile payments solutions lead at ACI Worldwide calls this a “chicken and egg” situation, and believes proliferation can only be created by a brand like Apple, because it needs to be driven by consumers (and preferably fanatical ones) rather than merchants.

Gessau also believes that Apple is one of the few brands that can help stimulate Near Field Communications (NFC) use, having initially rejected the technology for its iPhone 5, and that NFC is central to making the mobile payment experience better for consumer and merchant alike.

“At long last we have near field communication (NFC) built into the hardware - an addition long speculated, and often disappointed,” he declares. “For years there have been two camps regarding NFC, one predicting its demise and the other its rise as a key technology in mobile payments. Thanks to the recent wave of industry support for host card emulation (HCE), and now with Apple adding NFC, this settles the debate rather convincingly.”

Security concerns

Despite John Gessau’s optimism, Ian Tomlinson, CEO at Cybertill sits in the other camp regarding NFC, and says retailers and bricks-and-mortar service providers will need to undergo a massive uptake in PoS systems for NFC to become mainstream, especially given that NFC payments, according to Gartner, only currently account for approximately 2% of total transactional value.

Tomlinson also adds that another major sticking point may yet exist in how technology providers make PoS systems for NFC PCI-DSS compliant. Security and trust remain a major concern for consumers switching to contactless and mobile payments, and Apple’s status in this field has been tarnished in recent times by the iCloud hacking scandal, regardless of the debate over where fault lies.

Anthony Duffy, director for retail banking at Fujitsu UK & Ireland also believes Apple’s decision to shun NFC for the iPhone 5 has meant a deflection from valuable development time in the tech sector, and that industry is already starting to veer away from NFC, due to the improved security offered by other technologies:      

“At a time when many in the market are moving towards biometric for payments, Apple’s decision to go for NFC – a technology that up until now has struggled to clearly stamp its mark on the payments industry - is a bold one.

“While Apple’s implementation will undoubtedly help NFC recapture interest, the industry needs to keep working towards the adoption of more advanced payment technologies – such as biometrics – which will enable retailers and payment companies to provide a more secure service for their customers.”

The bigger picture

Whoever you ask and whatever side of the fence they sit on, there’s a strong feeling that Apple Pay almost represents a make-or-break for contactless mobile payments, and NFC. If Apple can’t deliver a successful mobile wallet, who can?

However, as Viv Craske alluded to earlier, the major factor in Apple Pay’s success could well be the interest and desire for change it drives from the finance sector. And that’s where Apple’s trump card may lie: as the banks and credit card services are already on-board:

“Apple’s entry to the market represents a critical piece of the mobile payments jigsaw,” says Steve Perry, chief digital officer at Visa Europe. “This is a pivotal moment for digital payments and one that demonstrates the momentum behind mobile and contactless services.

“Visa Europe has led the rollout of NFC payments ever since we launched the first contactless cards and terminals in 2007. Today there are more than 1.5 million Visa contactless terminals in stores across Europe – all ready to take mobile payments. Apple’s decision to enter the market reflects the scale of opportunity that exists in digital payments today. Its support will drive awareness and usage of contactless services around the world – we anticipate a “halo effect” that will benefit all players in the mobile payments ecosystem.”

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