David Donohue has a tough relationship with his wallet and the items inside it. He has lost his wallet twice in the past year. He has fallen victim to credit card theft three times. On one occasion, a thief plucked a credit card replacement sent to his home directly from his mailbox. Donohue said that is why he was excited to use Apple Pay, the tech giant's new e-commerce product released yesterday.
By pushing a button on his iPhone, he can make a purchase at one of the thousands of retail locations, including Macy’s or Walgreens stores, using the new service. No wallet, cash or plastic card necessary. “I’d be beyond thrilled to be walletless, simply because I don’t enjoy carrying one,” Donohue, 42, who works at a social media marketing startup in San Francisco, said in an interview. “My dream scenario is to carry only my phone and cash.”
Large tech and telecom companies like Google, Verizon and AT&T have tried for years to replace the traditional wallet with smartphone apps, having a click here or swipe there replace a credit card or dollar bills at the register. But commerce experts say they believe that the involvement of Apple, which helped revolutionise the mobile industry, could be the impetus that moves mainstream consumers to digital payments - the latest in an evolution of the way people buy goods and services.
Generation after generation of Americans used cash as their primary payment. They then turned to bank checks, later to credit and debit cards. Within a few decades of their introduction, credit cards became ubiquitous: By 2012, nearly three quarters of a billion credit cards were being used in the United States, according to the Federal Reserve. Think of Apple Pay as taking the card out of credit card. After entering their credit card information into the latest iPhones, customers can wave their phone in front of a properly equipped payment terminal at retailers like Whole Foods and McDonald's. Customers verify the transaction with the iPhone's fingerprint scanning hardware.
Today, relatively few people buy things with a wave of a smartphone. In the United States last year, consumers spent $1.6 billion using contactless mobile payments of the sort allowed by Apple Pay, according to estimates from eMarketer, a market research firm. That is just a tiny fraction of $264.3 billion in e-commerce purchases made last year, and an even smaller portion of $4.26 trillion in traditional in-store retail purchases.
"Right now, mobile wallets are sort of like e-commerce in 1995," said John Collison, co-founder of Stripe, a payments processing firm. "Amazon was one of the big companies that made people feel OK to put their credit cards online." Apple, he said, will do the same for the mobile wallet.
But others point to previous mobile wallet efforts from Google, Verizon and Square, among others, all of which failed to gain wide adoption. And Apple's largest difficulty could be to persuade thousands of retailers to accept Apple Pay at the checkout line.
“Apart from the cool factor, there’s really not a lot of value for the average merchant at the moment,” said Dene Carrington, an e-commerce analyst for Forrester Research. “Especially when you think about how merchants want to capture more information from consumers with each transaction.”
She pointed out that Apple Pay did not connect to loyalty and awards programs that merchants often find valuable. Industry experts, however, say that Apple’s offering has advantages that its predecessors did not. Accepting Apple Pay and some other mobile payment technologies usually relies on technology inside the payment terminals at registers, like at the stations where a consumer swipes a credit card.
By next fall, though, American merchants face a deadline to upgrade their credit card terminals to accept EMV - which stands for Europay, MasterCard and Visa - a technology that makes credit transactions more secure for consumers. Many believe those new terminals will also accept payments from Near Field Communication-enabled devices like the iPhone 6.
"Apple's timing here is an astute stroke of brilliance," said Norm Merritt, president of ShopKeep, a startup that sells point-of-sale products for small businesses. "People will already have to invest in new EMV-enabled machines. NFC is just a few bucks more."
Apple is also promoting Apple Pay’s security measures, calling it far safer than the credit cards consumers use on a daily basis. “We’re totally reliant on the exposed numbers and the outdated and vulnerable mag stripe,” Timothy D. Cook, Apple’s chief executive, said in Cupertino, California last month. “Which all of us know aren’t so secure.”
Apple is working with major credit card companies like Visa, American Express and MasterCard to integrate a tokenisation system into Apple Pay. The technology sends a secure code to merchants instead of a credit card number, which experts say will make credit card data theft less likely. Every transaction will also come with a unique encoded passcode that will help determine whether a transaction is legitimate. "Their brand, their technology and their choices in security made it compelling to us," said James Anderson, senior vice president of emerging payments at MasterCard, who also pointed to Apple's fingerprint identification system in the iPhone 6 as an impressive additional way to fight credit card fraud.
Still, consumers can use Apple Pay at a physical retailer only if they have the iPhone 6 or 6 Plus. More than half of American smartphone owners use an Android device, which does not work with Apple Pay. Also, cash is still hugely popular. It may not be easy for Apple to persuade millions of people to switch from a familiar payment system to a novel one.
Apple Pay will most likely need to overcome a sort of chicken-and-egg dilemma: Popularity may come, but only if a lot of people really want to use it. "There's a type of network effect that occurs in markets like this," said Jerry W. Kim, a professor at Columbia Business School. "The more people that use it, the more valuable it becomes."
For people like Trevor Mason, a 33-year-old finance buff from Ann Arbor, Michigan, Apple Pay can’t go mainstream fast enough. “I never carry cash in my wallet,” he said. Knowing “that I could just pay with my phone - that would be great.”
New York Times
