Apple Pay: Not Yet Simple

We spend increasingly more time with our faces buried in our smart phones. We rely on our devices to socialize, stay current, or save us a minute or two in our crazy, stressful lives.  So when Apple Pay launched in October 2014, promising a secure, simple payment solution to replace the cumbersome payment habit (wallet, card, swipe, select credit/debit, approve, and sign), most of us in Payments thought Apple Pay would be the holy grail that triggered consumers’ adoption of mobile payments. Despite awareness rates among iPhone 6 owners in the high 80’s, a recent First Annapolis survey reports that only 20% of iPhone 6 users have reported Apple Pay adoption, and only 15% use it frequently.
Apple Pay Troubles
I’m a big fan of Apple. With six of us in my house, we currently have one desktop, five laptops, two iPads, six iPhones, and one apple watch (not counting the old, inactive Apple gadgets lying around). I’m in the 15% of iPhone 6 owners who frequently use Apple Pay— speaking from experience, using Apple Pay at checkout has been anything but simple.
I recently transacted at a national Apply Pay retailer location. After completing my tap and touch payment at the terminal, the cashier asked to see the card associated with the transaction so they could enter the CVV code. I was then required to provide my signature to complete the purchase. When I pressed the cashier for the reason behind requiring additional verification, she replied with, “I just do what I’m told, you’ll have to speak with the corporate office.”
Pushing further, I asked Apple’s customer support for an answer as to why this was happening. They replied with classic finger pointing:
Hello Al,
In most situations it is because the merchant does not understand the level of security and fraud protection that Apple Pay inherently delivers.  Also, in some cases it is because the merchants payment processor may be using outdated protocols for taking payments causing the additional security to still be required at checkout (typically seen as a “transaction limit” where the card/card info is required when the transaction is over a set amount).
Thanks,
Apple Pay Merchant Support
This example was far from an outlier experience. Over Christmas, I purchased a hat from another national retailer. While the register didn’t display specific Apple Pay signage, the generic NFC payment symbol was present on the terminal. I used my mobile wallet to pay.  When the Apple Pay chime sounded, the cashier asked, “What was that?” I explained Apply Pay to the cashier, but it wasn’t until the manager came over and verified my payment that the merchant recognized my purchase as valid.
The Math on Apple Pay
Apple hasn’t yet figured out how to engage or incent all parties involved to allow for the delivery of their payment experience at checkout. The Apple Pay experience is far from the theoretical, frictionless story that Apple execs and payment industry gurus were hoping for. Anecdotes about Apple Pay merchants requiring a signature or prompting for a debit PIN, or stories of consumers unable to link a small/regional bank card to their Apple Wallet illustrate that Apple underestimated the overall complexity of the payment ecosystem.
At least for now, Apple Pay is a one-way revenue model. The issuing bank pays Apple approximately .15% for every transaction. This means that for every $100 transaction, Apple generates revenue of 15 cents. In return, touting confidence in their secure payment solution, Apple guarantees all transactions, and will pay the issuing bank for any chargebacks.
The quick math: If there are 50M iPhone 6 & 6 Plus owners in the US with an average annual credit card spend of $9,000, that brings a potential annual revenue stream of $675M to Apple. This figure seems like a great top line revenue number for Apple’s business case to justify more investment across the payment ecosystem to ensure that their ‘simple’ value proposition is being executed at checkout.
How Apple can Encourage Adoption
The complexity of our payment ecosystem requires that issuing banks, card brands, processors, merchants, and consumers are all engaged and committed to Apple Pay’s payment solution. It’s clear that there are still many players in this ecosystem that do not yet see the value in making the changes necessary to deliver the desired frictionless mobile wallet experience that avid Apple customers like me are hoping for.
Maybe Apple was thinking that the power of their brand would cause consumers to ‘pull’ these necessary changes through the ecosystem. If so, Apple will need to go back to the drawing board to engage and incent all stakeholders to do their part. It’s time for Apple to re-invest in a ‘push’ strategy across the entire ecosystem that drives a stronger, more consistent experience at checkout. Apple may even need to introduce an incentive that entices consumers to change their behavior— old habits die hard.
For further information, contact Al at abugbee@wcapra.com.