Will Apple Pay set the payments world alight?

Last updated: 14 November 2019

When Apple waded into the mobile payments scene, the contactless payments market went into overdrive. NFC technology is quite mature now. But the opportunity to use NFC to take mobile payments into the mainstream had eluded us…until recently. The question we’re now asking, is Apple Pay the tipping point?

It certainly addresses initial security concerns. Rather than taking out a credit or debit card, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element, a dedicated chip in the iPhone 6, iPad Air 2, iPad Mini 3 and Apple Watch. These numbers are never stored on Apple servers.

But will Apple Pay be able to deliver on its marketing spiel “gone are the days of searching for your wallet.”?

To purposefully leave the house without your wallet, you need to be confident that every shop you are likely to enter will accept Apple Pay. This is not assured. In fact, a number of retailers in the US (where Apple Pay is being rolled out first) have already announced they will be using alternative mobile payment systems instead.

To powerfully and ubiquitously convince retailers to adopt NFC we need to bring greater benefits than just payment convenience. We also need to address the potential long-term perceived risk of disintermediation – basically doing away with the middleman, in this case the banks.

To date, Starbucks has pioneered mobile transactions. It has a proprietary mobile payments app which evolved organically out of its payments card. The fabled ‘gold card’ was tied to its loyalty programmes, serving up great deals to regular customers. Sixteen percent of US transactions now take place via a mobile device—about 7 million mobile payments per week. Some important lessons can be learnt here.

Apple Pay represents a watershed moment. But to accelerate take-up, a contactless payment solution needs to help retailers deliver return on investment by:

  1. driving down cost (Apple Pay is built on the credit card system which sets swipe fees every time a customer uses a card)
  2. gathering better information on customer purchasing patterns
  3. Ultimately, increasing traffic to stores

As things stand, Gartner believes ‘Apple Pay represents a good first step for Apple in the mobile payment market, but obstacles remain for the company”.