Apple’s mobile payment system, Apple Pay, was launched last month in the U.S. and despite some resistance from a handful of retailers, initial usage figures are encouraging and confirm the service is rapidly building momentum. So how many people are using Apple Pay and it eventually replace your credit cards and cash?
Apple Pay late to the party, but nails the user experience
Apple was not the first company to launch a smartphone e-wallet and payment system, but it’s become very high profile since it was announced at the iPhone event in September. When Apple enters an nascent market like payments, everybody sits up and takes notice. At the iPhone launch, Apple CEO Tim Cook demonstrated how simple Apple Pay is to use; users need only tap the iPhone on the checkout terminal and then hold a finger on the Touch ID sensor to authenticate. Simple, quick, and seamless.
When you look back at the hardware and features Apple has added to its devices, it’s clear they have long been working towards a mobile payment scheme. Particularly with the Touch ID fingerprint sensor that first appeared on the iPhone 5s – it’s just one reason why the service works seamlessly from the user perspective. Behind the scenes, Apple has obviously been carefully cultivating its hardware and software but most importantly the financial arrangements with credit card companies and retailers, for years.
Apple Pay may dominate…
Various studies in the U.S. this week indicate that use of Apple Pay is rapidly growing as users upgrade to the iPhone 6, combined with more retailers deploying NFC-capable credit card readers at checkouts. Perhaps unsurprisingly, competing e-wallets like Google Wallet (which has yet to achieve any real success) and PayPal’s smartphone app are also benefitting from the new wave of awareness and interest in Apple Pay. Before Apple Pay launched, PayPal and Google Wallet were by far the most poplar digital wallets in the states, as shown in the chart below – but all that is about to change.
Forrester research has stated that retailers will take around $50 billion in mobile payments this year, rising to $143 billion by 2019. “It’s not just that we have smartphones” said Denée Carrington, an analyst at Forrester. “It’s that we’re increasingly dependent on or expect them to deliver more. Quite frankly, a lot has to do with the strength of the Apple brand and how much merchants and customers love how easy the experience is. I’m not saying it’s changing the landscape overnight. But this has never happened with other mobile wallets.”
Since Apple Pay’s October launch, it has already started to become the dominant mobile payment system, with retailers reporting that consumers are extremely keen to try out the new service. It comes as no surprise however, as a recent survey discovered that people appreciate the convenience and security of paying by smartphone – more than 30% of those surveyed echoed the same sentiments, essentially “I don’t have to worry about getting my credit or debit cards stolen”.
Not all retailers are onboard yet however. Since Apple Pay’s launch, CVS and Rite Aid came out in favour of a competing service (that is yet to launch) called CurrentC, which is being promoted by the Merchant Customer Exchange and Walmart, the country’s largest retailer. Fines will even supposedly be levied on stores that don’t have CurrentC exclusivity.
Growing retail support, but still some way to go
Apple says there are currently 36 retail partners who accept Apple Pay in brick-and-mortar stores, and that it’s available at more than 200,000 locations – it sounds impressive, but but only 15-20% of U.S. retailers even have NFC terminals. Despite this, the rising popularity of Apple’s system could help speed up adoption of compatible NFC-enabled tills.
In a report by the New York Times, Whole Foods Market said it handled more than 150,000 Apple Pay transactions in the first 17 days since launch, totalling 0.91% of all sales. “The experience at checkout has been very fast, convenient and secure”, said a Whole Foods representative.
McDonald’s, another early high profile adopter, said Apple Pay was being used in 50% of its wireless transactions, while Walgreens the chemists claimed its overall mobile payments (not just Apple Pay) have doubled in number. Apple Pay’s uptake is also having a knock-on effect on its competitors; for example Google Wallet has also experienced much higher usage recently.
Another telling sign that Apple Pay is growing is that installations of passes for the stock Passbook App (which stores credit cards, movie tickets and hotel reservations in the Apple wallet) have increased more than 54%, according to mobile marketing firm Vibes.
Apple has also been on the charm offensive to promote Apple Pay in the media. On Monday, AppleInsider published a feature following Eddie Cue (Apple’s SVP of Software and Services) being filmed on a holiday shopping spree for LA news station KTLA. The Apple executive used an iPhone 6 Plus at the Disney Store and Bloomingdale’s to demonstrate how easy it is to use, besides highlighting its security measures such as the one-time token that obviates the need for credit card details to be shared.
Mobile payment spending expected to rise this Christmas
Many American stores don’t yet support mobile payments of any type, so it could be years before Apple Pay is available absolutely everywhere. It’s encouraging to note a survey by credit card company Stratos which found a third of smartphone users in America intend to use some form of mobile payment system over the Christmas holidays. Around 17% percent of participants even said they were likely to spend more – perhaps this will convince the more hesitant retailers to jump on the bandwagon when they realise the early adopters are benefitting from increased sales.
Looking to the next few years, Investors.com predict that Apple Pay could hold as much as 20 percent of the payments market by 2019 and that Touch ID gives Apple a distinct advantage over its competitors. And because most Android smartphones don’t yet include a fingerprint scanner, that advantage is likely to continue for some time.
The outlook for Apple Pay
Apple Pay has a bright future in America as more retailers add support, and consumers discover it’s more convenient than using a credit card. In other markets the roll-out will take time, no more so than China where there are complex regulatory hurdles to overcome.
“If people want to use Apple Pay in China, Apple would have certain restrictions and limitations on operating payment businesses in China”, said Alibaba’s Executive Vice Chairm Joseph Tsai when interviewed by The Wall Street Journal. He firmly believes Apple should partner with Alibaba to use their back-end for payment processing in what was called “an obvious idea”. As one of Apple’s most important (and growing) markets, it’s important to provide the same seamless, compelling experience of using Apple Pay as everywhere else.
The success of Apple Pay is by no means guaranteed, but it already has fairly widespread retail support and strong interest from consumers. When it comes to the UK next year, let’s hope we can finally leave our wallets at home.
You can read more about Apple Pay and others in our recent article, the mobile payments revolution.