With the launch of Apple Pay and the near field communication (NFC) enabled iPhone 6, CEO Time Cook has promised to replace “antiquated” credit card transactions with the ability to make purchase with the swipe of a smartphone.
But while Apple, armed with card details from hundreds of millions of iTunes accounts, is arguably best placed to succeed where others have failed and convince people to ditch their wallet in favour of mobile payments, industry experts remain unconvinced of the short term impact.
“In terms of introducing a new payments device that devotees will flock to adopt, Apple has made a good start,” commented TechMarketView analyst Peter Roe.
“However, we expect that Apple is intent on playing a longer game, with a goal of building a much bigger global m-commerce business. The facilitation of payments is a means of “keeping score” and monetising all the other elements of a transaction.”
Gilles Ubaghs, Ovum senior analyst, Financial Services Technology, agrees that the Apple Pay NFC capabilities - available to US customers only on launch - will be welcomed by the more ardent Apple fans, but will not spur mainstream adoption in the near future at least.
“The overall impact on the mobile payments space in the very near term aren’t really that significant,” he told ComputerworldUK.
“There will be the early adopters who use it of course, but we are still a while away from the wallet being obsolete. Despite what Tim Cook says, payments aren’t really broken and they work pretty well for billions of transactions a year, bar the odd data/security loss issue, which tends to be more a PR disaster than anything else.”
The Apple Pay service is built into both versions of the iPhone 6 released on Tuesday, which have an NFC antenna, and will also be offered to those with earlier iPhone versions via an iOS 8 update.
Mastercard, Visa and American Express are all on board for Apple Pay, along with US banks accounting for 83 percent of credit-card purchase volume, the company said. Merchants including Sephora, Starbucks, Panera, Groupon, Staples and MLB.com have signed up to accept payments through Apple Pay by the end of the year, with more expected to come on board, the company said.
However Dave Hobday, managing director of Worldpay UK, commented that retailers outside should wait until adoption of Apple Pay ramps up before spending on systems to facilitate mobile payments.
“If the iPhone 6 lives up to the hype, it could take a whole swathe of consumers one step closer to ditching their wallets, but things won’t change overnight,” he said.
“Retailers should be looking to boost investment in new payment readers when it’s clear customers are ready to use them en masse. "
Addressing mobile security concerns
Gartner analyst Avivah Litah said that while there is little information on Apple Pay security features so far, it appears that the company is working with Visa, MasterCard, the other card brands and the major issuing banks to “use a payment card tokenisation scheme that these financial services companies endorse and recognise”.
“That means that consumers don’t have to store their payment card data in their mobile wallets,” she said, adding that they would set up their Apple Pay system with a credit card and, when the consumer is ready to pay, their financial service provider would issue them a one-time token number that would initiate the payment process.
The use of tokenisation is likely to benefit security, particularly in the US, following hacks of high profile retailers such as Target and Home Depot
“This is very exciting news and has the potential to change the payment landscape, at least in the US where merchants are being breached every other day and are up to their eyeballs in security issues and expenses,” Litah said.
Mark Bower VP product management at Voltage Security, agreed that Apple's 'data-centric' transaction security approach would result in improvements over current payments methods involving static credit card numbers.
“Through the use of this data-centric security strategy, Apple Pay reduces risk of data breaches and credit card theft where it is supported,” he said.
Industry collaboration is key
TBR principal analyst Ezra Gottheil, Principal Analyst said that while Apple’s Cook had been correct to address security and privacy concerns during the Apple Pay launch, the collaboration between payment providers and merchants could be key to spurring adoption.
“More important was the network of partners which will allow this system to reach critical mass, solving the chicken-egg problem that has held back mobile payments so far,” he said.
“Most major credit card companies and many major retailers are committed to this payment system. Other companies will soon follow, and mobile payments will be broadly adopted.
However, Ovum’s Ubaghs highlighted potential sticking points around the financial relationships between Apple and its provider partners.
“The big question still at this point, is how exactly does the revenue model work,” he said.
“The transaction rebate Apple is rumoured to have negotiated with the schemes are closer to 0.15-0.25 percent, a far cry from the 30 percent they are used to, and its not quite clear how that works out with existing payment providers, or if it will be sharing this by offering cheaper payment acceptance rates to merchants.”
Ubagh added that should Apple fail to unite the payments market in the shift to mobile, where other tech giants such as Google have had limited success, it could have significant repercussions.
“One big issue I think worth pointing out is if this doesn’t work,” he said.
“If Apple Pay is a big flop, this has the potential to knock back mobile payments by many years. The industry has been waiting for Apple for a long time now, so it it all went a bit pear shaped, I think mobile payments at the point of sale would take a pretty big knock altogether.”