Apple finally made its long-awaited entrance into the mobile payments field on Tuesday with the announcement of ApplePay, but the question still remains if Apple can succeed to garner mass adoption from consumers. Previous mobile payments efforts, like Google Wallet, have drawn much hype but failed to gain that mass adoption. There are several factors playing to Apple’s favor though, beyond its hundreds of millions of customer credit cards already on file with iTunes and its highly regarded brand. Apple made some excellent choices in its design and the timing of the release of ApplePay that have it well positioned to push the mobile payments market forward.
1. Younger consumers are already making purchases with their mobile devices
Although the uptake of mobile payments at the point of sale has been slow, largely because of the lack of merchant infrastructure for mobile payments acceptance, consumers are increasingly making payments on their mobile devices. This is especially true of young consumers, according to the recent "AlixPartners Mobile Financial Serices Tracking Study." The consumer survey found that 63% of those between the ages of 18 and 25 and 56% of those between 26 and 35 have already made mobile payments of some sort.
[For more of our coverage on ApplePay, check out: Will Apple Help Legimitize Mobile Payments?]
“That’s basically saying that if they already have a mobile device, then it is very likely that they’re already engaged with these mobile behaviors… Consumers aren’t waiting for NFC. They’ve been interacting with what’s available today,” Teresa Epperson, a managing director at AlixPartners, says of the results.
With the interest of young consumers in making transactions with their mobile devices already evident, Apple timed the release of ApplePay well to push mobile payments technology forward and ride that consumer demand.
2. Frictionless experience
When it comes to user experience, Apple consistently sets a high standard, and it has succeeded in doing so again with ApplePay.
“From a user experience standpoint, they’ve made the transactions unbelievably easy. With the thumbprint authentication, there’s no need to enter username or password credentials. It’s the most seamless experience that’s secure,” says Deborah Baxley, principal, cards and payments, Capgemini.
In addition to driving consumer acceptance, a friction-less experience will also drive merchant acceptance, Baxley points out. Quick transactions mean merchants will be able to get customers through their stores faster.
Given the recent publicity around the iCloud hack at the beginning of the month, it was very important public image-wise for Apple to hammer home the security of its solution when it was announced. And it did just that by touting ApplePay’s leverage of tokenization and thumbprint biometric authentication. In addition to making the solution very secure, Capgemini’s Baxley says, the thumbprint authentication will deliver a competitive edge for ApplePay.
“I think everyone will start using tokenization, but the fingerprint reader will give a competitive advantage as it eliminates typing. That will drive acceptance,” she notes.
4. Data privacy in exchange for swipe fees
Apple is also taking customers’ data privacy very seriously, as it will not see or share any customer payment credentials when transactions take place, thanks to tokenization. This emphasis on data privacy seems to have enabled Apple to get a piece of the swipe fees that its banking partners charge for transactions.
Previous digital brands that have tried to partner with financial institutions on a mobile payments solution, like Google, have been more interested in the transaction data than in the payments revenue from swipe fees, says AlixPartners’ Epperson. That could be a concern for banks if one of those digital brands were able to monetize the transaction data in some way so they would be able to stop charging swipe fees, eliminating a traditional revenue source for banks.
Apple is saying it isn’t making a play for the transaction data. By instead going after a share of the swipe fees, Apple has aligned its goals with its banking partners, Epperson notes. Basically, they’re both trying to increase swipe fee revenues as much as possible by driving more transactions.
“The banks are giving up some revenue, but everyone’s interests are aligned. And I think Apple’s stance on data privacy helped facilitate that,” says Epperson.
5. NFC terminalization and EMV migration
Apple probably couldn’t have picked a better time to make a bet on NFC (Near Field Communication) payments with the October 2015 deadline for EMV (Europay, MasterCard, Visa) migration approaching. The biggest barrier remaining to mobile payments is acceptance, as merchants have yet to upgrade their point-of-sale terminals to accept contactless transactions, according to Epperson. But as larger retailers start to upgrade their terminals for acceptance of EMV chip cards, many will also make the small investment to add NFC acceptance to those new terminals. Apple throwing its weight behind NFC will only add to that impetus.
“The winds are blowing in the right direction. I think the Apple announcement, along with the EMV deadline, will light a fire under a few folks to figure out what they need to be doing,” says Epperson.
ApplePay will help push consumer demand for NFC acceptance among merchants, and will also lead to the development of new location-based services around couponing and offers, Capgemini’s Baxley predicts. Those kinds of services will create a more engaging shopping experience for consumers, further driving interest in NFC, she adds.
“NFC is really a magical technology. It’s just taken a long time [for it be adopted]. It’s like the camera phone, when it first came out people could just take pictures with it. Now people are paying their bills with it; there are just so many more uses that people have dreamed up,” Baxley says. “And NFC is a much more interesting technology than the camera phone.”
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Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio