Banks and retailers hop on Apple Pay bandwagon

Discussion
Sep 10, 2014

Yesterday was Apple’s big day. The tech giant introduced its new Apple iPhone and its long awaited Watch. While both of those products may be big news, what’s inside them — specifically Apple Pay — may prove to be the biggest headline of all.

In short, Apple Pay promises to give consumers a safe, convenient way to make payments, no credit cards needed. Owners of Apple’s new iPhone 6 models will not need to wake their display or open an app to make a payment. Thanks to a Near Field Communication (NFC) antenna in the device, all that is necessary is to bring the phone near a contactless reader with a finger on Touch ID.

For those worried about their sensitive data falling into the hands of thieves, Apple says it has that covered. Apple doesn’t store an individual’s credit card number or give it to stores where purchases are made.

"We create a device-only account number and we store it safely in the secure element," said Apple senior vice president Eddy Cue during yesterday’s keynote address. "Each time you pay, we use a one-time payment number along with a dynamic security code, so you no longer have the static code on the back of your plastic card."

Apple has buy-in from major banks, the top three credit card companies and retailers representing more than 220,000 stores in the U.S., including the Apple Store, Bloomingdale’s, Disney Store, Macy’s, McDonald’s, Nike, Petco, Staples, Subway, Toys "R" Us, Walgreens and Whole Foods.

"This should be a very natural extension of smartphone technology," Gil Lauria, an analyst with Wedbush Securities, told The Wall Street Journal. "Imagine walking through Macy’s and getting an offer for 15 percent off sent right to your phone and then being able to apply that just by flashing your phone at the register."

Apple Pay will also be included in apps for Groupon, Instacart, Panera Bread, Sephora, Starbucks, Target and others.

"We know mobile is becoming the front door to Target, and we’re focused on creating the best possible mobile experiences for our guests," said Jason Goldberger, senior vice president of Target.com and mobile, on the chain’s A Bullseye View website. "We’re thrilled to support Apple Pay to streamline how our guests pay in the Target app — this absolutely makes purchasing from Target’s mobile app easier than ever."

According to a recent survey conducted for CreditCards.com, 44 percent percent of respondents said they’ll never use phones to make payments while 18 percent expect to "hardly ever" use them. Apple has succeeded in getting Americans to change behaviors in the past. Will the same be true with Apple Pay?

How does Apple Pay stack up against other mobile payment options? Will Apple succeed where others have failed in changing consumer payment behavior? How much market share will Apple Pay need to be viable?

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25 Comments on "Banks and retailers hop on Apple Pay bandwagon"


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Keith Anderson
Guest
7 years 8 months ago

At first glance, Apple Pay has two key advantages vs. many competitors:

  1. An additional layer of security that some are saying could have prevented some of the recent, highly-publicized data breaches
  2. Apple doesn’t know what shoppers bought, where they bought it or what they paid for it. This is one of the key barriers to merchant engagement for alternative payment models.

Apple appears to have learned from others’ mistakes engaging merchants and shoppers, and their odds seem better than their predecessors. But I do have big questions about the economics of Apple Pay, which haven’t been widely discussed.

Frank Riso
Guest
7 years 8 months ago

All I can say is, it’s about time. Once Apple nation starts to use mobile payment it will catch on very fast. Android has had this feature but since very few if any retailers accepted it, it died on the vine. Now it can move forward with all the Apple users. MSI had the NFC feature for their devices planned as far back as 2007, but again retailers and consumers were not ready. Can I say it again? It’s about time!

Dick Seesel
Guest
7 years 8 months ago

It sounds like the the dynamic security code is akin to the sort of chip technology common in credit cards outside the U.S. (and I believe those cards are less prone to data breaches as a result). It won’t happen overnight, but Apple will break down resistance over time to the idea of “pay-by-phone,” in the same way that consumers are comfortable today shopping online and entering credit card data on their smartphones and tablets. The number of partners enlisted by Apple, from credit card brands to national retailers, should help Apple Pay gain additional traction.

David Dorf
Guest
7 years 8 months ago

It appears that Apple is doing payment correctly. They made steady progress with Touch ID and Passbook, and are now adding NFC to round out the technology. The key here is their use of tokenization, which is the secure way to handle payments. But with the recent bad press around hacking, I fear many consumers will be reluctant to give it a try even though it’s probably safer than the status quo. It will take some education and time without any incidents before consumers build up enough trust. Apple needs to be patient and hope that retailers stick with them for the long haul.

Tom Redd
Guest
7 years 8 months ago

NFC and the supporting technology will be a major selling point to the shopper on why they should use their phone. The barrage of promos that are applicable only to mobile-based purchases will be another enticer for people to use their mobile. Apple Pay, because it is Apple, is one way Apple will succeed where others have failed. Hey, the Millennials live by Apple and if Apple says DO IT consider it DONE.

P.S. I watched the live release yesterday, and must say the Apple Watch is very impressive. Might get one—would for sure make me more “hip.”

Cathy Hotka
Guest
7 years 8 months ago

Apple Pay makes for an exciting story! But expect adoption to be slow. A lot of consumers will have to be convinced that their data will remain protected. With a choice between shaving off a few seconds and having a safer transaction, consumers will choose safety.

Max Goldberg
Guest
7 years 8 months ago

We’ll soon find out how Apple Pay stacks up against other mobile payment options. Come September 19, Apple will begin to ship millions of new mobile phones with the embedded technology, so consumers will have it in their hands. If retailers push acceptance of the technology, and if it does not suffer an early data breach, usage will grow, slowly at first and then dramatically.

A key question is how Apple Pay will stack up to MCX. Will both gain wide acceptance, or will retailers force a VHS-Betamax war by only accepting one and not the other?

Ralph Jacobson
Guest
7 years 8 months ago

With all the free press this technology is getting, versus competing applications, I believe consumers will adopt this payment method relatively quickly. Just like the iPod wasn’t the first music player, and the same for iPad and now Apple Watch, consumers will gravitate toward their brand advocacy of Apple and probably give this a try. I think this application will also have great visibility globally, as opposed to other apps. My bank has already sent me an email touting their partnership with Apple for this payment method. This is going to work, I’d guess.

Jason Goldberg
Guest
7 years 8 months ago
It’s certain to succeed for some use cases, but it’s still immature, and has a number of unanswered questions. The day it goes live it represents one of the largest installed bases of digital wallets, thanks to the existing 800,000 iTunes accounts. I think we need to learn more. I like to think of payment solution in four major contexts: Consumer in-store at the POS: Paypal, MCX CurrentC, Isis/Softcard, Google Wallet Retailer in-store as the payment processor: Square, Amazon In mobile apps: Stripe, Braintree, AliPay, PayPal, Google Wallet On desktop/mobile websites: Checkout with PayPal, Visa Checkout, Amazon Payments, etc. Each of these different contexts has a unique ecosystem of competitors and customer problems to be solved. At the moment Apple Pay is only playing in the consumer in-store and the mobile apps spaces. But in the 2014 omni-channel world, do retailers really want to accept/promote payments types at the POS that they can’t take via their websites? Does Apple intend to extend Apple Pay to web payments? I suspect the roadmap for Apple Pay is… Read more »
Nikki Baird
Guest
Nikki Baird
7 years 8 months ago

I have wanted to try many different payment systems as they have been introduced, but most of them, with maybe the exception of Paypal, required a confusing array of sign-up requirements, or the addition of hardware to my device (yes, an Apple phone), or some other hoop that quickly became a barrier. So I’m thrilled to discover that I can join this payment system by the simple act of buying a new phone (we’ll see if the setup is as simple as billed to the public). That alone is already leagues ahead of most everyone else.

Mohamed Amer
Guest
Mohamed Amer
7 years 8 months ago

Apple Pay stacks up well against the competition. As with Apple’s other breakthroughs, these are achieved by combining existing technologies and packaging them in a highly convenient and intuitive UIX. Security is provided via the dynamically-generated token and fingerprint technologies. Flexibility and payment choices are afforded by iTunes’ credit card repository and expansion in Passbook (these in turn add user confidence through existing familiarity). Ongoing POS upgrade cycling to token-based EMV chip technology is an opportunity to enable NFC acceptance at new POS terminals.

To sum it up: Apple’s appeal, timing, melding of existing technologies, huge iTunes user base, cooperation among major card issuers, and consumers’ confidence in Apple’s ability to “enrich people’s lives” (in the words of Tim Cook) will prove more than sufficient to drive necessary adoption.

Bill Davis
Guest
7 years 8 months ago

Obviously when Apple brings its clout to solving an issue it’s usually a boon for that market. Apple is one of two leading mobile ecosystems, Android being the other, so this clearly should have a positive impact on mobile payments. That being said, I think Google will have a response to this, so the debate is far from being resolved.

And Softcard, formerly ISIS Wallet (excellent decision to re-brand, especially given President Obama’s speech this evening), backed by Verizon, AT&T and T-Mobile is still very much a factor here.

In my view its not game over, its game on.

Gene Detroyer
Guest
7 years 8 months ago

Other than swiping my phone at Starbucks, I really don’t know the various systems. But, I’d sure rather have Apple (or Google, for that matter) keeping my data than any other retailer.

Adrian Weidmann
Guest
7 years 8 months ago

The inclusion of the Near Field Communication (antenna) will finally drive and accelerate the use and adoption of mobile payment. Regardless of your view of Apple, their devices drive the market. This was the one feature that I was particularly focused on. Had Apple not included this technology, mobile payments would have continued to receive lukewarm response from consumers for the next two to three years as we waited for the next number.

It is estimated by some that the unit sales of the iPhone 6 could be 235 million in fiscal year 2015 alone. This is definitely a game changer for mobile payments. This will drive consumer acceptance. It will also drive retailers to accept the technology and integrate into their POS systems. The recent rash of security breaches may cause a slightly slower acceptance but this was the catalyst we’ve been anticipating.

Larry Negrich
Guest
7 years 8 months ago

Apple Pay is a good first step but I am disappointed that Apple has been dragging its feet for years in an effort to come up with an alternative to NFC and in the end did not.

Progress will continue to be slow on mobile payment at POS even with the Apple announcement. In a best-case scenario it will be in four years before 100 percent of iPhone users will have an NFC-equipped phone which will represent about 50 percent of consumers. I think Apple has created a better total solution to the security issue. However, what about the other 50 percent of consumer mobile transactions? Retailers will surely be faced with supporting Apple Pay and multiple other mobile payment solutions all seamlessly-integrated into their years-old POS software.

Ed Dennis
Guest
Ed Dennis
7 years 8 months ago

Yes Apple will succeed. They will succeed because they have a huge user base that trusts Apple and their products.

In my experience there have been two glitches with Apple. The first was the bad antenna in early iPhones, the second was Apple Maps. Both were addressed and fixed by Apple. 

The fact is that Apple users trust Apple. Apple seems to have found a way protect the consumer from all of the crooks operating in the stolen credit card/stolen data market. I am sure that changes will be made in the system as time passes, but the fact that Apple has developed a means of providing me with a payment method that provides enhanced security is welcomed. The best that anyone has done for me so far is offer to fix damage that has already been done. Prevention is worth a pound of cure!

Shep Hyken
Guest
7 years 8 months ago

This is a very exciting time for Apple—and the consumer. Think about the impact that PayPal had when it came on the scene. And, then there is the Square, which is a great payment device that can turn a smartphone or tablet into a credit card machine. All of these created conveniences for the consumer. The Apple Pay product will be easy and convenient for the consumer. I remember Bill Gates predicted something like Apple Pay many years ago in his book, “The Road Ahead.”

Market share isn’t the issue at this point. It’s usage. How long until enough people are using the technology to make it commonplace versus just something used by “early adopters.”

David Lubert
Guest
David Lubert
7 years 8 months ago

Apple will succeed, but it’s premature at this point to project this in terms of market share. The point is that it will give shoppers an option and with timing of the Home Depot mess, security in the minds of the consumer will become a pressing issue. I am now more inclined to use my iPhone instead of swiping! The timing quite frankly is a boon to Apple, IMO.

Naomi K. Shapiro
Guest
Naomi K. Shapiro
7 years 8 months ago

Apple does it again! Think Different! And in view of today’s security breaches and concerns about collection of customer data. I wondered if Apple would or could continue to think different after Steve Jobs. Well, they have. I have personally used only Apple products from the beginning. It was because I believed and proved to be true that Apple has better security, less prone to security breaches, or hacking than other systems. Apple Pay sounds good vis a vis other mobile payment options. And with a start like that with these multiple giant retail clients, I wouldn’t worry about market-share. The only thing that bums me out is I bought my IPhone5S less than a year ago.

Craig Sundstrom
Guest
7 years 8 months ago

What Cathy said! I think they can make progress if they can convince people 1) this is safe, and 2) current methods are not (this being a key, since I see little evidence of mass demand for mobile pay at present); but it doesn’t take much to lose point 1. The recent security breeches—whether they are really relevant to this technology or not—do little to help.

Alexander Rink
Guest
7 years 8 months ago

It’s ultimately an issue of convenience versus security. And on that note, considering the number of banks, credit card providers and retailers they already have signed up for launch, each of whom would have been likely to conduct some level of security audits on the system to protect themselves from the negative PR associated with data breaches, count me among those who feel trusting enough that I would certainly vote for the convenience and time-saving.

As others have said, Apple has a huge and trusting customer base. This will definitely appeal to the millennial shoppers, but adoption will be slower amongst the older generations. Overall, I expect market share to jump relatively quickly with millennial and young-at-heart adoption leading the way, and then increase more gradually as some individuals will never quite get comfortable with the newfangled technology.

Herb Sorensen, Ph.D.
Guest
7 years 8 months ago

Apple Pay will likely pay off big time. It may begin at the checkout, but the checkout is the worst part of shopping, and not just because of payment. Paying as you put products in your shopping cart or bag, and leaving the store is the way of the future, and Apple is hereby teed up for that game.

That’s right, the REAL goal is abolishing checkout, and Apple Pay is a massive move toward that!

Kai Clarke
Guest
7 years 8 months ago

This is just Apple’s way of putting a spin on NFC which all new android phones have, and is the standard way of communicating, securely, payment options through your phone. Apple finally getting behind this mobile pay option (either through their system or NFC) will certainly be a big game changer, but it does not shut out all of the other mobile phone users….

Dave Nixon
Guest
Dave Nixon
7 years 8 months ago
It’s not viable for the following reasons… 1. Retailers will be very slow to adopt. It is a technology upgrade and therefore costs money to implement. There is no real benefit to them in accepting Apple Pay over credit and debit cards. EMV (Europay, Mastercard and Visa) had to bribe retailers with lower transaction charges in order to take up Chip & PIN and even then there was significant reluctance and doubts over the technology. It took several years to roll-out Chip & PIN even with the heavyweight card issuers behind the initiative. It was a huge expense for the card companies and the retailers. 2. iPhones run on batteries, so I would still need to carry my cards with me in the event that the battery is flat. 3. Here in the UK we have contact-less card payments and many retailers have still not adopted the reader technology. However, I can’t see what the major benefit for the consumer is. I still have to pay with something and I’ll still have my cards with… Read more »
Chris Ciabarra
Guest
Chris Ciabarra
7 years 8 months ago

For one, this is a unique differentiator in digital payment that could make it catch on—it protects the end user. This brings a much needed additional layer of security. The cardholder isn’t at risk via the retailer, which is great for everyone. This gives out need-to-know information. The POS knows what the customer spent, Apple doesn’t know as they don’t need to, just like the merchant doesn’t need the cc info.

Apple is smart enough to stay out of the POS and payment world, working with existing payment technology and POS systems for fast adoption among retailers. That’s how this has gotten so big so quickly. I had about 50 people ask me for this already; I can see people jumping onboard.

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