/ Apple

Will Apple Pay Work?

Apple just announced ApplePay. It’s a mobile wallet. Is it enough?

It has two new features that differentiate it from existing mobile wallets:

  1. Fingerprint authentication
  2. Tokenization

Apple is proud of some of its launch stats:

  1. Top 6 Issuers
  2. 83% of card volume
  3. 220,000 retail locations

Payments are hard though. It’s all about ubiquity.  Apple has a 42% marketshare right now. Apple Pay will be on the new iPhone 6 and 6L.  Less than half of iPhone users upgrade each year so within the next twelve months 23% of new phones will have this, but an even smaller share of installed phones will have it.

To make a new payments system works it requires that enough stores and enough users have the system (cashiers need to use it enough to be familiar).  Will this be enough users?

It certainly won’t be enough stores. There are more than 17MM business locations in the US, with more than 5MM accepting credit cards today. With 220,000 locations, Apple is just supporting about 4% of retail locations.

Google Wallet is probably the best comparison point to Apple Pay. Launched just more than two years ago, Google Wallet used NFC, had support of several major retailers like Bloomingdale’s and Walgreens (same as Apple).  It didn’t have tokenization or TouchID, sure, but it worked very similarly. It did not work well at all. Paying with Google Wallet at Walgreens no doubt takes longer than paying with a card.

In the Apple launch video they made paying with a credit card seem really hard. You have to make it seems hard to entice people to the product. The problem is, paying with a card isn’t that hard.

If anyone can make mobile payments work it’s going to be Apple. The fact that they are the trend-setting company in technology goes a long way. The commitment to privacy compared to Google obvious data play are a strong benefit.

One thing not covered clearly by Apple is how the wallet works. How many cards can you store? How easy is it to choose the card with which to pay?  This is clearly self-serving to my company, Wallaby Financial, but card choice matters. If you’re an Apple exec, you can use your Gold Amex or your debit card for everything.  If you’re a normal American you have three or four credit cards and you have to choose one.

If you need to pick a card you’re either aiming for rewards/discounts or avoiding fees and interest. How will you know which card to use? How will you change? Will is be easier/faster/better than just pulling a card out of your wallet?

If Apple doesn’t know what you bought, do you still have to collect a paper receipt? I’m not sure they answered all of their own questions.

I hate to bet against Apple. I will certainly buy an iPhone 6 and test Apple Pay.  I’m not convinced it is the answer, but if it drives people to really understand and desire mobile payments (which people don’t really want today) then everyone in payments can be grateful for their driving the market.

There are more reactions to come as we learn more. It’s an exciting new entry, but I’m not sure even Apple can drive people to mobile payments.