Are retailers making a mistake not accepting Apple Pay?

Discussion
Oct 28, 2014

In a previous RetailWire discussion, we asked if Apple Pay’s success will rely on the participation of retailers that are part of the Merchant Current Exchange (MCX) consortium. But what about those retailers? Do they need Apple Pay?

It’s not difficult to understand why retailers that are part of MCX would want to give preferential treatment to the mobile payment system (CurrentC) they are in the process of testing and rolling out. But are they helping their cause by preventing customers from using Apple Pay who would like to do so?

Numerous reports have been published about chains including Walmart, CVS and Rite Aid that are not accepting Apple Pay. The conclusions of various articles on the subject are:

A. Apple Pay could greatly help the adoption of mobile payments by consumers.

B. MCX retailers are primarily interested in eliminating fees charged by the credit card companies for transactions, so they are willing to ignore the wishes of customers who want to use Apple Pay.

Retailers have argued for years that reducing fees they pay to credit card companies would ultimately benefit consumers in the way of lower prices. Of course, card companies have replied that being forced to reduce the fees they charge to merchants would necessitate those charges being moved to consumers.

Ron Shevlin, senior retail banking analyst at Aite Group, is not a believer in CurrentC. In a blog post, he wrote that the cost of driving adoption will ultimately offset any reductions in fees that merchants obtain.

Mr. Shevlin also wrote that he had asked former Walmart CEO Lee Scott if he believed MCX and CurrentC would succeed. Mr. Scott said, “I don’t know that it will, and I don’t care. As long as Visa suffers.”

A Gizmodo article suggests that MCS member stores that turned off the near-field communications needed to accept Apple Pay may have been required to do so as part of an exclusivity agreement signed as part of membership.

One thing is clear, Americans like having payment choices — cash or plastic, debit or credit, Visa or MasterCard, etc. Telling consumers they cannot use a preferred form or payment, be it Apple Pay or any other mobile option, could result in people choosing one store over another.

"It could get ugly for CVS and Rite Aid if consumers are asking for Apple Pay," Patrick Moorhead of Moor Insights & Strategy, told USA Today.

Will MCX retailers be hurt by the publicity surround their decision to not accept Apple Pay? How do you think they should handle this issue going forward?

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33 Comments on "Are retailers making a mistake not accepting Apple Pay?"


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Ryan Mathews
Guest
7 years 7 months ago

It’s not the publicity that is going to hurt them. The whole issues hinges on how popular Apple Pay becomes.

If, on the one hand, Apple Pay is a runaway success, the MCX retailers will suffer a significant loss of business.

On the other hand, if Apple Pay fails to live up to expectations there won’t be enough customer attrition to discuss, at least for very long.

I feel they should have taken a wait-and-see attitude and the problem would have resolved itself one way or the other. Still not a bad idea.

Max Goldberg
Guest
7 years 7 months ago

Yes! Retailers should stop trying to dictate terms to consumers and let consumers choose how they want to pay for purchases. NFC is more secure and less expensive than traditional credit cards. Apple can drive acceptance of NFC. It’s a potential win-win situation, if retailers would just let it happen.

Bob Phibbs
Guest
7 years 7 months ago

This seems to be a bit of a tempest in a teapot. Like when I use the Starbucks app when convenient, but when traveling abroad where it is not, I still pay.

Let’s admit it, this is a niche of a niche way to pay. It is interesting, and if I saw it I would try to use Apple Pay, but it’s a long way from being the determiner in retail choice.

After all, it is still a purchase via my Visa card, not free money.

Don Uselmann
Guest
Don Uselmann
7 years 7 months ago

Retailers need to be customer-centric around this issue and give the customer what they want. If Apple Pay becomes popular with the consumer and a retailer refuses to accept it while accepting another, they would be in, from a consumer standpoint, a ludicrous position that could impact the overall service image for their brand. Rather like saying we accept Visa but not MasterCard, unless their objective is to simply annoy customers. The CFO may be able to explain and rationalize the decision, but the customer will never get beyond it as simply bad service.

Paula Rosenblum
Guest
7 years 7 months ago

The buzz around Apple Pay was the first step towards consumers recognizing that mobile payments actually solve a problem or two: The check-out process is faster and they don’t have to give credit card data to retailers.

But now, as I look at the myriad of confusing options (if you have an iPhone 6, you can’t use the NFC chip for Google Wallet, MCX is not planning to involve credit cards, Apple Pay only accepts cards from five banks plus AmEx and only personal accounts, etc., etc.) I think we’re about to go back the way we were before.

Consumers, who weren’t all that crazy about the idea of mobile payments in the first place will just use their credit cards. I don’t think they’ll change their shopping habits particularly, they’ll just continue as they were. And pity the retailer who loses debit data.

The right thing to do was to be agnostic. That’s over now.

Mohamed Amer
Guest
Mohamed Amer
7 years 7 months ago

In today’s retailing environment there is no argument that the consumer is in charge and is making demands on how they want to shop and engage with retailers. Not to give consumers choices is short-sighted and ill-advised.

Mark Price
Guest
Mark Price
7 years 7 months ago

Given the rapid rise of the installed base with Apple Pay, estimated to be more than 50 million when the iPhone 6 roll out is complete—it seems foolhardy to not accept Apple Pay. Such an approach will only work if all major retailers in a field follow the same course. For example, if CVS and Rite-Aid do not accept Apple Pay, iPhone users may shift volume to Walgreens to be able to make use of the system.

Apple owners tend to be highly involved and engaged, which makes them excellent best customers for a retail chain. Spurn their needs at your own peril.

Ron Margulis
Guest
7 years 7 months ago

First off, I can easily see a couple and maybe several of the companies in MCX breaking off to accept Apple Pay if there is even the slightest push by consumers. That’s what retailers (and restaurants and whoever else is in MCX these days) do. There could also be a call for collaboration as I’m not sure how far down the road MCX has gotten with its mobile technology platform. Last I heard, which was during the Shop.org conference, they still had a lot of work to do to make the system fully functional.

Camille P. Schuster, Ph.D.
Guest
7 years 7 months ago

If MCX is being designed because it benefits retailers and is less convenient for consumers, the retailers have a big problem. How many times have we talked about the control consumers have in the marketplace today? If Apple Pay is more convenient and/or preferred by consumers and if they choose to shop at stores using Apple Pay, then retailers choosing to not offer Apple Pay will lose. At this point in time the retailers need to offer both and monitor which system is preferred. If consumers prefer one and the retailers prefer the other, the long term choice will be obvious.

Mel Kleiman
Guest
7 years 7 months ago

Apple has one of the most, if not the most, loyal customer bases out there. They love technology and want to use it. If not allowed to use it they will go some place that will allow them to use it. They think it is cool.

Not a good move for retailers. Would have been better off to accept it to start with and come up with some reason it was not working as well as they thought.

Dan Frechtling
Guest
7 years 7 months ago

As noted in the article, this is a battle between A, consumer adoption of Apple Pay, and B, retailer desire to save interchange fees. The future looks like this:

  1. Apple will get consumers to change habits.
  2. Apple Pay will be more consumer-friendly than MCX would have been.
  3. Interchange fees will drop over time.

Apple’s track record in 1 and 2 is well known. As for 3, at renegotiation time the power balance should further shift in favor of Apple. In addition, the savings in fraud from stolen card numbers will rationalize lower transaction costs.

When this happens, neither Apple nor retailers (see Durbin Amendment with regard to debit fees) would necessarily pass on cost savings to consumers.

Gene Detroyer
Guest
7 years 7 months ago

In the consumer’s eyes every payment system is the same. I swipe my phone and pay my bill. They will never understand why one system is acceptable in one store and not the other. What they will understand is that the retailer who does not accept the system they use does not want their business.

This is quite short-sighted on the part of the retailers that are dissing the Apple Pay. I am sure their logic is, “it’s OK, they will just use their credit cards.” They have to look down the road. In five or 10 years, customers will not be carrying credit cards, they will be making all their transactions with their smartphones. This may be no big deal now, but it is going to be a big deal in a surprisingly short period of time.

Robert DiPietro
Guest
7 years 7 months ago

Consumers will decide which payment system they want to use, not the retailers and not Apple. Any action retailers or other payment systems take must be in the best interest of the consumers as they will ultimately decide who wins.

We are so early in the adoption that choice is what matters at this stage of the game. With all the hoopla around this, it only impacts a tiny fraction of customers. I used Apple Pay at my local Walgreens last week and the cashier said, “You’re the second person to use it—you and the associate who works in Photo.”

Shep Hyken
Guest
7 years 7 months ago

It’s simple. If enough customers are asking to pay via Apple Pay, the retailer better strongly consider it. Don’t fight it or you’ll be playing catch up with your competition who won over your customers because they were willing to accept the payment via the latest and accepted technology.

Case in point: I know of people that won’t go to certain restaurants because they only accept cash—no credit cards or checks. I guess they just don’t need the extra business.

Rynder Roy Klomp
Guest
Rynder Roy Klomp
7 years 7 months ago

Darwinism at work. It is the beginning of a new methodology with many competing options.

Those that adapt best to the consumer’s actual actions (the fact someone installed an app on a phone doesn’t necessarily mean they will use it, how many inactive apps do you have on your phone?) will survive and prosper. Assuming there is enough demand, of course.

Robert Heiblim
Guest
Robert Heiblim
7 years 7 months ago
Business is always hurt when they ignore customer preferences. While Apple Pay is far from a certain success at this point, it is also evident that consumers want to try it. I do not see retailers or others refusing credit cards, so refusing this payment method at this point does more to promote and popularize Apple Pay than help their position, especially as their solution is not available now. This looks quite awkward to the public.If their solution is better and offers more to consumers then it will be adopted. That hurdle is still to be tackled by Apple Pay, but this does nothing good for the perception of these firms. Considering the upcoming wide switchover to chip and pin cards and more, it would seem that open payment systems that offer consumer choice would be best. Focusing on making the CurrentC option the best is the correct way for the MCX retailers to proceed. As we have seen with the history of credit cards, exclusives such as Diners Club or Amex worked with in… Read more »
Kenneth Leung
Guest
7 years 7 months ago

The publicity isn’t going to be the issue right now until their customer satisfaction declines if more non-MCX retailers get on the Apple Pay wagon. Right now Apple Pay is so new that Apple needs the retailers to support it to gain critical mass, retailers don’t need to support Apple Pay right now to complete the transaction. Once critical mass is reached the MCX retailers will face the wallet backlash and pressure. For them right now they view supporting Apple Pay to be helping build up their competition. Similar situation Apple faced in the music industry in the beginning of iTunes, or retailers faced when dealing with Amazon in the early days.

Raymond D. Jones
Guest
Raymond D. Jones
7 years 7 months ago

Retailers always seem to have trouble remembering that they exist to serve the needs of the customer, not the other way around.

We learn over and over that retailers succeed when they allow the customer choices in how they want to shop, what they want to buy and how they wish to pay.

While it is understandable that they want to develop a system that cuts out some of the transaction costs, they run the risk of alienating owners of Apple phones (of which there are more than a few) and once again looking like they think the customers belong to them.

Ultimately they will have to accept multiple forms of payment, so they would be well served to adopt that policy now rather than later.

Graeme McVie
Guest
Graeme McVie
7 years 7 months ago
One of the big challenges that will have to be addressed is Apple’s stated position of “No card information shared with merchants.” Retailers are not going to give up the data on customer purchases without a fight. A lot of retailers have invested significant funds in building mechanisms (from traditional loyalty programs to smartphone apps like Walmart’s Savings Catcher) that allow them to understand customer purchase behavior. They have done this because they believe that they need this customer data in order to better understand and meet the needs of customers, which in turn, they believe, will allow them to be successful in a sustainable way going forward. Retailers are making the calculated decision that the variety of other payment alternatives will be sufficient for the vast number of customers. There may be a few cases where retailers might lose customers who will be influenced to shop elsewhere because of Apple Pay, but retailers may be willing to accept that trade-off compared to potentially losing insight into their most valuable customers’ needs, which in turn… Read more »
Li McClelland
Guest
Li McClelland
7 years 7 months ago

Are people absolutely sure that this is only about MCX and “competition” between payment types (CurrentC and Apple Pay)? When any retailer first accepts—then turns off—a payment mechanism from existing customers, it suggests to me that there still may be some underlying problems with Apple Pay. Perhaps we will hear more about this.

Herb Sorensen, Ph.D.
Guest
7 years 7 months ago

Retailers MUST accept the payment option the shopper offers. Nothing urgent just yet, but note that VISA does NOT own the credit card business, and probably no one will “own” the payment business. But the “firstest” with the “bestest” will have a huge advantage. And “best” here is defined by how the paying crowd moves.

James Coolbaugh
Guest
James Coolbaugh
7 years 7 months ago
Eventually, most retailers will accept Apple Pay, when they begin to see significant adoption. I do believe that Apple Pay will be more successful than say, Google or PayPal, etc., because of the loyalty that Apple users have for their brand and technology. I would estimate that large scale adoption will take about 2-3 years. Will this cause consumers to move their business to other retailers? In the short term, the simple answer is NO. There will be no wholesale migration of disgruntled consumers to the early adopters. However, if retailers continue to refuse after a reasonable amount of time and significant adoption occurs, then I can see that beginning to happen. However, I don’t believe this in and of itself will be the core reason for a consumer to change loyalties. It just might be the straw that broke the camel’s back. I just don’t see anytime in the near future when consumers won’t have to still carry a physical card. There are just too many institutions and situations that would require having the… Read more »
Ed Rosenbaum
Guest
7 years 7 months ago

My guess (and strictly a guess) is that Apple Pay will become popular enough that retailers will be forced to accept it by their customers. Why and how can retailers dictate what the buying public wants? Are they trying to say they don’t want our business unless we pay the way they want? Come on…business is business and more important…sales are sales. Bottom line speaks.

Lee Kent
Guest
7 years 7 months ago

Here is the short term answer. Yep! Right now, consumers are very concerned about security. They aren’t thinking about whose offering “will be” the best or which option “will eventually” save card processing fees.

The only option available TODAY is Apple Pay and it appears to be the safest option outside of spending cash. Retailers with NFC and not accepting Apply Pay just might pay the piper this holiday season.

And that’s my 2 cents!