Every new introduction by Apple attracts widespread attention. But when the tech giant introduced Apple Pay, the potential implications might not have been completely clear to the techies and consumers who love to hear what the innovator is doing next. According to some observers, Apple Pay and its competitors have the potential to reconstruct the retail landscape—or to fade away as just another fad that few people found sufficiently appealing.
Apple Pay is unique among mobile payment systems in several ways. It relies on near-field communications (NFC) technology, such that a chip in smartphones sends a signal to a receiver maintained by the retailer. Consumers pay for their purchases by unlocking their iPhones with their fingerprint. The payment system is linked to the customer’s credit card, but no account information gets sent to the retailer; instead, each transaction takes a specific transaction code for the retailer, which Apple Pay completes by using the credit card information stored in a secure element that is inherent to the phone’s system. That is, no one ever holds the customer’s payment information other than the bank that issues the credit card used.
Other mobile payment options, such as CurrentC, instead function through an app, such that they work with any smartphone, not just the iPhone 6, and do not require an NFC sensor. Instead, retailers scan a QR code generated by the app to complete the transaction. CurrentC also does not link to users’ credit cards but instead takes the money directly out of a bank account. With this method, retailers no longer need to pay the swipe fees charged by credit card companies for the convenience.
Perhaps not surprisingly, the major credit card companies have lined up behind Apple Pay, as have prominent retailers such as Macy’s, McDonald’s, Whole Foods, and Sephora. It is thus available at more than 200,000 retailers. Yet the stores that have not adopted Apple Pay might be even more pertinent, because they include Walmart and Best Buy. These retailers have announced that they will not be adding NFC sensors to their stores, even as credit card companies increasingly are mandating that all new credit card readers include this technology.
A showdown thus appears to be brewing: on one side, a partnership among one of the most popular brands in the world, all the major credit card companies, and many huge banks; on the other side, the world’s largest retailer and the habits of shoppers who already use their credit cards at some 9 million retailers.
The resolution to the showdown ultimately depends on consumers’ preferences. The various mobile payment systems promise to solve a pressing consumer need, in that they offer greater security. Because they do not involve any transmission of the consumer’s credit card information to the retailer, the chances of a data breach decrease significantly. At the same time, these systems require consumers to link the mobile provider to their payment information, so they might just move the location for the potential data breach. Moreover, the question remains if shoppers really find it more convenient to pull out their phones to be scanned or to swipe with their finger, rather than handing over their credit card. Previous options such as Google Wallet and PayPal at the register have not met with great success.
What are the advantages and disadvantages of Apple Pay from retailers’ perspective? From consumers’ perspective?
Sources: Kelsey Lindsey, Retail Dive, September 15, 2014; Danielle Douglas, “Clash of the Titans: Wal-Mart Rejects Apple Pay to Pursue a Competing Mobile Payment System,” Washington Post, September 11, 2014