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Retailers should be particularly excited for Monday’s debut of Apple Pay, which promises to be an excellent tool for separating shoppers and their money.
Apple’s (AAPL) mobile payment service will let iPhone users buy things by simply pulling out their device. Researchers have long found that shoppers spend more the further they get from handling actual currency and tend to better remember cash transactions. These tendencies help explain why credit card balances tend to bloat and why casinos use chips in place of money. It’s also why companies such as Starbucks (SBUX) encourage customers to load money onto apps or prepaid cards.
Behavioral economists have a term for this dynamic: decoupling. The card or app or casino chip mentally separates the consumer from his bank account. The payment is both delayed and bundled with other charges so it doesn’t seem so painful. Citibank tested the research in 2009 and found a mobile “tap to pay” pilot program significantly boosted both the number and size of consumer transactions.
Buying things without cash is simply more fun. Richard Thaler, a behavioral economist at the University of Chicago, proved such transactions are more pleasurable experiences (PDF). Anyone who has ever walked away from an Uber ride knows this feeling well. With credit card data embedded in the app’s settings, someone using the service never actually pays or even tips—at least not in any physical way.
The question with Apple’s new payment service is whether it’s an additional degree of distance from credit cards or merely taking the well-established place of plastic in the psychology of shopping. Apple Pay doesn’t require any swiping or tapping, which seems to suggest a new level of abstraction. With a fingerprint on the iPhone button and a little wave at the cash register, the deal is done. “Now paying in stores happens in one natural motion,” Apple says in its pitch. “You don’t even have to look at the screen.”
Some 220,000 stores are already set up to accept the payments, including Bloomingdale’s, Foot Locker, Macy’s, McDonald’s, and PetSmart. The list also includes RadioShack, a retailer desperately in need of a revenue boost. The other brick-and-mortar companies in that troubled camp—J.C. Penney (JCP), Sears (SHLD)—would do well to get onboard.
Apple’s recent unveiling of its new iPhone 6 and Apple Pay platform has sparked a lot of conversation surrounding mobile payments, near field communications (NFC) and the future of mobile commerce. With Apple finally adopting NFC and entering the payments space, you may have some questions regarding how this might affect you and your business.
Merchant Warehouse has followed the announcement and the technology closely all in an effort to help our partners and customers understand the opportunities of Apple Pay and NFC enabled payments present for their businesses.
How will Apple Pay work?
Apple Pay syncs a few of Apple’s existing programs together and when coupled with the new NFC chips in the iPhone 6 can create a seamless payment experience at the point-of-sale. By combining NFC and the account information Apple already has with iTunes, the ability to store other credit, debit, gift and loyalty cards with Passbook, a secure element with their TouchID thumb print imaging, Apple Pay delivers a seamless and secure wallet solution for retail environments and mobile check-out.
What’s the biggest impact Apple Play will have on our industry?
Apple’s introduction into the payments space will have two inherent outcomes: (1) applications that rely on NFC will be developed at a more rapid pace; and (2) consumers should finally start adopting mobile payments. To date, there havent been that many mobile wallets or applications that have taken advantage of NFC. But with NFC being incorporated in the iPhone 6, we can expect more and more applications using the NFC functionality for not only payment apps, but for other practical functions.
It has long been predicted that Apple would be the catalyst for mobile payments. They distribute the most popular mobile devices in the world, have a loyal customer base that integrate different aspects of their lives to their hardware and software and an avid developer community that develops applications to exploit their devices’ functionality.
We already trust Apple (and other mobile devices and platforms) with some of our most important daily functions. It’s only a matter of time before consumers begin to trust and adopt Apple Pay to be their payment method of choice.
Merchant Warehouse is very excited for the opportunities that Apple Pay will bring for businesses. Our Genius Customer Engagement Platform was designed for these types of innovations in mind. The NFC readers in our Genius devices can accept Apple Pay payments today and it will continue to evolve with future innovations.
While many consumers are ready to embrace the new mobile-payments service, most retailers are not. At least, not yet
On Tuesday, Tim Cook took the stage to announce — in addition to a few other things you may have heard about — a brand new mobile payments service called Apple Pay. Instead of swiping a credit card, users of the service will swipe their iPhones (or Apple Watches), which can be preloaded with customer’s debit and credit cards using the Passbook application.
courtesy of Apple
Having one phone to rule all our cards sounds pretty great, and Apple is certainly positioned better than any other company to make mobile payments finally catch on. But there’s one issue the company still has to surmount before it can kill off plastic for good: Right now, the vast majority of retailers lack the technology to accept the company’s new payment service.
As CEO Tim Cook acknowledged during Apple’s announcement, only 220,000 stores will work with Apple Pay out of the gate. That’s about 2.4% of the roughly 7 million to 9 million merchants in the U.S. that accept credit cards. The remaining 97.6% of businesses do not have point-of-sale systems that work with near-field communication (NFC), the technology Apple Pay relies on. Merchants will have to upgrade their checkout process for Apple’s service to catch on, and the expense of such an endeavor has—thus far—left many businesses reluctant to do so.
Michael Archer, a partner leading the Global Financial Services practice at Kurt Salmon, thinks the major indicator of whether an Apple payment service will succeed is the number of locations prepared to accept NFC. According to Archer, who spoke to MONEY just before Apple Pay was announced, the service would need to be usable at about 20% of U.S. retail locations to reach critical mass of acceptance. So far, Apple isn’t close to hitting that number.
However, Archer points out that credit card companies may have an incentive to help stores acquire NFC technology to give their own cards an edge. “This could be a way to lock someone into the card if you can make it extremely convenient to use in the device,” said Archer. Another development he thinks could work in Apple’s favor is that merchants will soon be forced to upgrade their point-of-sale systems to accept EMV, a new card technology meant to reduce fraud. Card companies have given their customers until 2015 to make the transition, with laggards bearing increased liability for credit card fraud, but stores have dragged their feet. With the deadline approaching, more merchants may finally decide to upgrade and choose to add in NFC compatibility while they’re at it.
But not all experts are rosy on Apple’s chances for mobile payment domination—at least in the near term. George Wallner, co-founder and CTO of LoopPay, an Apple Pay competitor that uses existing point-of-sale infrastructure for mobile payments, predicts a slow acceptance of Apple Pay, and other NFC-dependent services like Softcard and Google Wallet. While Wallner was impressed by Apple’s demonstration, he says it will take more than the promise of Apple compatibility to get merchants to change their ways, especially when the status quo works just fine. “It’s not an easy change,” says Wallner. “It is a long, drawn-out, careful, extensive process. It can take six to eight months to even certify a new system. Retailers look at the bottom line, and they see nobody is offering a financial incentive for them to change.” According to the LoopPay founder, even increased fraud liability may not be costly enough to spur a jump in NFC adoption.
That said, Wallner believes that over time, merchants will gradually upgrade their equipment to support Apple Pay. In a decade, he sees NFC having significant market penetration and co-existing with both older and newer payment technology.
One feature that might convince merchants to upgrade ahead of schedule would be a way for businesses to use Apple Pay to reward loyal customers. According to Archer, a slightly more convenient way to pay, by itself, doesn’t provide enough value to customers or merchants to force a change in behavior. Integrating loyalty programs into Apple Pay, on the other hand, would give merchants a reason to upgrade their terminals and consumers a reason to use the service. Passbook, which powers Apple Pay, also integrates with multiple retailers’ loyalty cards.
Apple “is going to be playing on the cool factor on the first round of this,” said Henry Helgeson, CEO of Merchant Warehouse, a company that helps retailers implement mobile payments. “The real value is when merchants can put loyalty in those wallets and get repeat business. It’s something that they know and retailers know is very important to them. We’re going to see version 2.0 with some of those things.”
Overall, Helgeson anticipates Apple Pay being a huge success. His company recently outfitted 3,000 retailers with upgraded point-of-sale systems that included an NFC reader. “I’m pretty happy about that decision right now,” said Helgeson.
