Written by: Madding King
Apple Pay has arrived.
Everyone has been talking, writing, tweeting, and fighting about it. But is the mainstream actually using it?
Will it replace cash transactions? In my opinion, at this moment, NO.
Here are the three biggest challenges to Apple Pay’s success:
1) Merchants Are Mad
Apple Pay is not going to succeed unless they can persuade merchants to accept the new form factor. You cannot have a payment system without having both merchants AND consumers.
Although it is great to tout that over 1 million people loaded cards into the Apple Pay wallets in the first 72-96 hours when it went ‘live’, if the consumers do not have any place to actually use it, then it doesn’t matter. The people that are running Apple Pay obviously realize this, but it’s still interesting that merchants are reluctant to embrace a technology that a decent number of consumers have indicated that they want to use.
That decision is most likely informed by the experiences that large merchants in the US have had over the past two decades. Large merchants in particular do not feel that existing payment technologies are delivering value at a level that would justify the cost and they have been quite vocal about it. Merchants have initiated two enormous anti-trust cases, and they’ve even prompted the Department of Justice to bring the third. The merchants have also engaged in an intense lobbying campaign in Washington DC to limit the fees that they pay in connection with payment cards. From the merchants’ perspective, Apple Pay just does not solve a problem that they are willing to pay to have solved. The fact that many merchants are still not willing to get on board shows just how big the divide in the industry is at this point.
2) Changing to Chips
Apple Pay, like all new payment technologies, is a long term play. I do not think it’s success should be judged on a day-to-day, week-to-week, or even a quarter-to-quarter basis. From a merchant’s perspective, payments technology is going to change significantly in the next three to five years. Why? Card networks have announced rules that have effectively created an incentive for merchants to change the technology at the point-of-sale.
Although the new cards being issued now and over the next few years will not look much different than the plastic cards we have had in the past, the new cards also have a computer chip. All cards will continue to have a backwards compatible mag stripe, but we will see a migration towards transactions that happen with the chip instead of the mag stripe.
Apple Pay is designed to take part of that change. The problem is that Apple Pay uses near field communication (NFC) to communicate at the point-of-sale, so merchants will also need to incorporate that technology to accept Apple Pay.
At the end of the day, Apple Pay is only going to be interesting to the extent that people use it- and consumers can only use it if merchants are willing to accept it. So by definition, Apple Pay can’t win if merchants do not want to use them.
3) Consumers Care Less
Why are consumers going to adopt any of these technologies? Cards and cash work great. That being said, the smartphone could work, and there are several interesting things you could do with the phone as an identifying device to create a better experience.
The fact that you still have to enter your PIN using Apple Pay slows down the convenience factor needed to make usage go mainstream. Even though the phone knows who you are and that you are the only person authorized to use your Apple Pay “debit card”- you still have to provide more identifying information to the terminal to initiate the transaction! Not the most seamless experience.
It does not seem likely to me that this technology is going to be adopted en masse any time soon absent significant investment to engage both consumers and merchants. Mobile payments are a two-party game. You need the consumers AND the merchants to make it work.
That being said, I do hope this does take off. I would love to have one less item in my pocket!
What do you think? What was your experience using Apple Pay? Do you agree or disagree with me?