Are retailers making a mistake not accepting Apple Pay?

In a previous RetailWire discussion, we asked if Apple Pay’s success will rely on the participation of retailers that are part of the Merchant Current Exchange (MCX) consortium. But what about those retailers? Do they need Apple Pay?

It’s not difficult to understand why retailers that are part of MCX would want to give preferential treatment to the mobile payment system (CurrentC) they are in the process of testing and rolling out. But are they helping their cause by preventing customers from using Apple Pay who would like to do so?

Numerous reports have been published about chains including Walmart, CVS and Rite Aid that are not accepting Apple Pay. The conclusions of various articles on the subject are:

A. Apple Pay could greatly help the adoption of mobile payments by consumers.

B. MCX retailers are primarily interested in eliminating fees charged by the credit card companies for transactions, so they are willing to ignore the wishes of customers who want to use Apple Pay.

Retailers have argued for years that reducing fees they pay to credit card companies would ultimately benefit consumers in the way of lower prices. Of course, card companies have replied that being forced to reduce the fees they charge to merchants would necessitate those charges being moved to consumers.

Ron Shevlin, senior retail banking analyst at Aite Group, is not a believer in CurrentC. In a blog post, he wrote that the cost of driving adoption will ultimately offset any reductions in fees that merchants obtain.

Mr. Shevlin also wrote that he had asked former Walmart CEO Lee Scott if he believed MCX and CurrentC would succeed. Mr. Scott said, “I don’t know that it will, and I don’t care. As long as Visa suffers.”

A Gizmodo article suggests that MCS member stores that turned off the near-field communications needed to accept Apple Pay may have been required to do so as part of an exclusivity agreement signed as part of membership.

One thing is clear, Americans like having payment choices — cash or plastic, debit or credit, Visa or MasterCard, etc. Telling consumers they cannot use a preferred form or payment, be it Apple Pay or any other mobile option, could result in people choosing one store over another.

"It could get ugly for CVS and Rite Aid if consumers are asking for Apple Pay," Patrick Moorhead of Moor Insights & Strategy, told USA Today.

BrainTrust

Discussion Questions

Will MCX retailers be hurt by the publicity surround their decision to not accept Apple Pay? How do you think they should handle this issue going forward?

Poll

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Ryan Mathews
Ryan Mathews
9 years ago

It’s not the publicity that is going to hurt them. The whole issues hinges on how popular Apple Pay becomes.

If, on the one hand, Apple Pay is a runaway success, the MCX retailers will suffer a significant loss of business.

On the other hand, if Apple Pay fails to live up to expectations there won’t be enough customer attrition to discuss, at least for very long.

I feel they should have taken a wait-and-see attitude and the problem would have resolved itself one way or the other. Still not a bad idea.

Max Goldberg
Max Goldberg
9 years ago

Yes! Retailers should stop trying to dictate terms to consumers and let consumers choose how they want to pay for purchases. NFC is more secure and less expensive than traditional credit cards. Apple can drive acceptance of NFC. It’s a potential win-win situation, if retailers would just let it happen.

Bob Phibbs
Bob Phibbs
9 years ago

This seems to be a bit of a tempest in a teapot. Like when I use the Starbucks app when convenient, but when traveling abroad where it is not, I still pay.

Let’s admit it, this is a niche of a niche way to pay. It is interesting, and if I saw it I would try to use Apple Pay, but it’s a long way from being the determiner in retail choice.

After all, it is still a purchase via my Visa card, not free money.

Don Uselmann
Don Uselmann
9 years ago

Retailers need to be customer-centric around this issue and give the customer what they want. If Apple Pay becomes popular with the consumer and a retailer refuses to accept it while accepting another, they would be in, from a consumer standpoint, a ludicrous position that could impact the overall service image for their brand. Rather like saying we accept Visa but not MasterCard, unless their objective is to simply annoy customers. The CFO may be able to explain and rationalize the decision, but the customer will never get beyond it as simply bad service.

Paula Rosenblum
Paula Rosenblum
9 years ago

The buzz around Apple Pay was the first step towards consumers recognizing that mobile payments actually solve a problem or two: The check-out process is faster and they don’t have to give credit card data to retailers.

But now, as I look at the myriad of confusing options (if you have an iPhone 6, you can’t use the NFC chip for Google Wallet, MCX is not planning to involve credit cards, Apple Pay only accepts cards from five banks plus AmEx and only personal accounts, etc., etc.) I think we’re about to go back the way we were before.

Consumers, who weren’t all that crazy about the idea of mobile payments in the first place will just use their credit cards. I don’t think they’ll change their shopping habits particularly, they’ll just continue as they were. And pity the retailer who loses debit data.

The right thing to do was to be agnostic. That’s over now.

Mohamed Amer
Mohamed Amer
9 years ago

In today’s retailing environment there is no argument that the consumer is in charge and is making demands on how they want to shop and engage with retailers. Not to give consumers choices is short-sighted and ill-advised.

Mark Price
Mark Price
9 years ago

Given the rapid rise of the installed base with Apple Pay, estimated to be more than 50 million when the iPhone 6 roll out is complete—it seems foolhardy to not accept Apple Pay. Such an approach will only work if all major retailers in a field follow the same course. For example, if CVS and Rite-Aid do not accept Apple Pay, iPhone users may shift volume to Walgreens to be able to make use of the system.

Apple owners tend to be highly involved and engaged, which makes them excellent best customers for a retail chain. Spurn their needs at your own peril.

Ron Margulis
Ron Margulis
9 years ago

First off, I can easily see a couple and maybe several of the companies in MCX breaking off to accept Apple Pay if there is even the slightest push by consumers. That’s what retailers (and restaurants and whoever else is in MCX these days) do. There could also be a call for collaboration as I’m not sure how far down the road MCX has gotten with its mobile technology platform. Last I heard, which was during the Shop.org conference, they still had a lot of work to do to make the system fully functional.

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
9 years ago

If MCX is being designed because it benefits retailers and is less convenient for consumers, the retailers have a big problem. How many times have we talked about the control consumers have in the marketplace today? If Apple Pay is more convenient and/or preferred by consumers and if they choose to shop at stores using Apple Pay, then retailers choosing to not offer Apple Pay will lose. At this point in time the retailers need to offer both and monitor which system is preferred. If consumers prefer one and the retailers prefer the other, the long term choice will be obvious.

Mel Kleiman
Mel Kleiman
9 years ago

Apple has one of the most, if not the most, loyal customer bases out there. They love technology and want to use it. If not allowed to use it they will go some place that will allow them to use it. They think it is cool.

Not a good move for retailers. Would have been better off to accept it to start with and come up with some reason it was not working as well as they thought.

Dan Frechtling
Dan Frechtling
9 years ago

As noted in the article, this is a battle between A, consumer adoption of Apple Pay, and B, retailer desire to save interchange fees. The future looks like this:

  1. Apple will get consumers to change habits.
  2. Apple Pay will be more consumer-friendly than MCX would have been.
  3. Interchange fees will drop over time.

Apple’s track record in 1 and 2 is well known. As for 3, at renegotiation time the power balance should further shift in favor of Apple. In addition, the savings in fraud from stolen card numbers will rationalize lower transaction costs.

When this happens, neither Apple nor retailers (see Durbin Amendment with regard to debit fees) would necessarily pass on cost savings to consumers.

Gene Detroyer
Gene Detroyer
9 years ago

In the consumer’s eyes every payment system is the same. I swipe my phone and pay my bill. They will never understand why one system is acceptable in one store and not the other. What they will understand is that the retailer who does not accept the system they use does not want their business.

This is quite short-sighted on the part of the retailers that are dissing the Apple Pay. I am sure their logic is, “it’s OK, they will just use their credit cards.” They have to look down the road. In five or 10 years, customers will not be carrying credit cards, they will be making all their transactions with their smartphones. This may be no big deal now, but it is going to be a big deal in a surprisingly short period of time.

Robert DiPietro
Robert DiPietro
9 years ago

Consumers will decide which payment system they want to use, not the retailers and not Apple. Any action retailers or other payment systems take must be in the best interest of the consumers as they will ultimately decide who wins.

We are so early in the adoption that choice is what matters at this stage of the game. With all the hoopla around this, it only impacts a tiny fraction of customers. I used Apple Pay at my local Walgreens last week and the cashier said, “You’re the second person to use it—you and the associate who works in Photo.”

Shep Hyken
Shep Hyken
9 years ago

It’s simple. If enough customers are asking to pay via Apple Pay, the retailer better strongly consider it. Don’t fight it or you’ll be playing catch up with your competition who won over your customers because they were willing to accept the payment via the latest and accepted technology.

Case in point: I know of people that won’t go to certain restaurants because they only accept cash—no credit cards or checks. I guess they just don’t need the extra business.

Rynder Roy Klomp
Rynder Roy Klomp
9 years ago

Darwinism at work. It is the beginning of a new methodology with many competing options.

Those that adapt best to the consumer’s actual actions (the fact someone installed an app on a phone doesn’t necessarily mean they will use it, how many inactive apps do you have on your phone?) will survive and prosper. Assuming there is enough demand, of course.

Robert Heiblim
Robert Heiblim
9 years ago

Business is always hurt when they ignore customer preferences. While Apple Pay is far from a certain success at this point, it is also evident that consumers want to try it. I do not see retailers or others refusing credit cards, so refusing this payment method at this point does more to promote and popularize Apple Pay than help their position, especially as their solution is not available now. This looks quite awkward to the public.
If their solution is better and offers more to consumers then it will be adopted. That hurdle is still to be tackled by Apple Pay, but this does nothing good for the perception of these firms. Considering the upcoming wide switchover to chip and pin cards and more, it would seem that open payment systems that offer consumer choice would be best. Focusing on making the CurrentC option the best is the correct way for the MCX retailers to proceed. As we have seen with the history of credit cards, exclusives such as Diners Club or Amex worked with in the past mostly fell to consumer choice. It will be no different here. The answer is to compete.

Kenneth Leung
Kenneth Leung
9 years ago

The publicity isn’t going to be the issue right now until their customer satisfaction declines if more non-MCX retailers get on the Apple Pay wagon. Right now Apple Pay is so new that Apple needs the retailers to support it to gain critical mass, retailers don’t need to support Apple Pay right now to complete the transaction. Once critical mass is reached the MCX retailers will face the wallet backlash and pressure. For them right now they view supporting Apple Pay to be helping build up their competition. Similar situation Apple faced in the music industry in the beginning of iTunes, or retailers faced when dealing with Amazon in the early days.

Raymond D. Jones
Raymond D. Jones
9 years ago

Retailers always seem to have trouble remembering that they exist to serve the needs of the customer, not the other way around.

We learn over and over that retailers succeed when they allow the customer choices in how they want to shop, what they want to buy and how they wish to pay.

While it is understandable that they want to develop a system that cuts out some of the transaction costs, they run the risk of alienating owners of Apple phones (of which there are more than a few) and once again looking like they think the customers belong to them.

Ultimately they will have to accept multiple forms of payment, so they would be well served to adopt that policy now rather than later.

Graeme McVie
Graeme McVie
9 years ago

One of the big challenges that will have to be addressed is Apple’s stated position of “No card information shared with merchants.” Retailers are not going to give up the data on customer purchases without a fight. A lot of retailers have invested significant funds in building mechanisms (from traditional loyalty programs to smartphone apps like Walmart’s Savings Catcher) that allow them to understand customer purchase behavior. They have done this because they believe that they need this customer data in order to better understand and meet the needs of customers, which in turn, they believe, will allow them to be successful in a sustainable way going forward.

Retailers are making the calculated decision that the variety of other payment alternatives will be sufficient for the vast number of customers. There may be a few cases where retailers might lose customers who will be influenced to shop elsewhere because of Apple Pay, but retailers may be willing to accept that trade-off compared to potentially losing insight into their most valuable customers’ needs, which in turn may lead over time to those valuable customers leaving the retailer altogether. I don’t think retailers are going to let Apple bully them into accepting Apple Pay without allowing the retailers to keep the data—this could just be the opening salvo in the negotiation process which will ultimately lead to an accommodation that will work for retailers, Apple and shoppers.

Li McClelland
Li McClelland
9 years ago

Are people absolutely sure that this is only about MCX and “competition” between payment types (CurrentC and Apple Pay)? When any retailer first accepts—then turns off—a payment mechanism from existing customers, it suggests to me that there still may be some underlying problems with Apple Pay. Perhaps we will hear more about this.

Herb Sorensen, Ph.D.
Herb Sorensen, Ph.D.
9 years ago

Retailers MUST accept the payment option the shopper offers. Nothing urgent just yet, but note that VISA does NOT own the credit card business, and probably no one will “own” the payment business. But the “firstest” with the “bestest” will have a huge advantage. And “best” here is defined by how the paying crowd moves.

James Coolbaugh
James Coolbaugh
9 years ago

Eventually, most retailers will accept Apple Pay, when they begin to see significant adoption. I do believe that Apple Pay will be more successful than say, Google or PayPal, etc., because of the loyalty that Apple users have for their brand and technology. I would estimate that large scale adoption will take about 2-3 years.

Will this cause consumers to move their business to other retailers? In the short term, the simple answer is NO. There will be no wholesale migration of disgruntled consumers to the early adopters. However, if retailers continue to refuse after a reasonable amount of time and significant adoption occurs, then I can see that beginning to happen. However, I don’t believe this in and of itself will be the core reason for a consumer to change loyalties. It just might be the straw that broke the camel’s back.

I just don’t see anytime in the near future when consumers won’t have to still carry a physical card. There are just too many institutions and situations that would require having the physical card, at least for now. Therefore, consumers will still be able to but what they need, albeit, not with their Apple Pay.

One of the reasons we’re seeing a slower adoption of this technology is the fact that when retailers expend significant resources to handle these technologies and then don’t see the use or adoption of those technologies by the consumer (as always promised by the vendor), they begin to become more cautious on how fast they’ll implement. But eventually, they do.

For example, at Duane Reade, they were one of the first to adopt NFC use for American Express and others. What did they find? Only 2% of customers used the feature when available. Also, they didn’t see significant use of Google or PayPal payment use either, even those were available at the consumers.

While this may not be indicative of how Apple users will adopt this technology, it does go to show that new features and “ease” of use technologies aren’t always used as expected.

Ed Rosenbaum
Ed Rosenbaum
9 years ago

My guess (and strictly a guess) is that Apple Pay will become popular enough that retailers will be forced to accept it by their customers. Why and how can retailers dictate what the buying public wants? Are they trying to say they don’t want our business unless we pay the way they want? Come on…business is business and more important…sales are sales. Bottom line speaks.

Lee Kent
Lee Kent
9 years ago

Here is the short term answer. Yep! Right now, consumers are very concerned about security. They aren’t thinking about whose offering “will be” the best or which option “will eventually” save card processing fees.

The only option available TODAY is Apple Pay and it appears to be the safest option outside of spending cash. Retailers with NFC and not accepting Apply Pay just might pay the piper this holiday season.

And that’s my 2 cents!

Mark Burr
Mark Burr
9 years ago

Retailers should make decisions on what payment products they accept based on the value to their customers and the cost associated with delivering that value.

Just because they payment product has the brand “Apple” on it does not mean it is the best value choice for both the retailer and the customer. Retailers have to make that value decision on a option by option basis.

In the payment product world, American Express brand integrity is as strong as any in the market. That doesn’t mean every retailer accepts it, in fact many more likely don’t accept it than do.

If this was “Joe Pay,” it would be an entirely different discussion.

I don’t buy the argument that retailers shouldn’t limit choices or should let the consumer decide and they simply have to accept every product in the payments segment. If that were so, Costco could not have come even close to being the second largest retailer while not accepting most of the forms of payment available. It is a false premise.

Ed Dennis
Ed Dennis
9 years ago

I certainly think they will be hurt. I use American Express due to my excellent experience with their security and customer service. When a retailer does not accept American Express, I evaluate my business relationship based upon this circumstance and have stopped doing business with retailers for this reason alone.

With regard to Apple Pay, I see this as being a more secure way for me to do business. I have long been a CVS fan and customer, but should their decision stand (don’t think it will), then I will have to examine my business decision to deal with them. My question to all is why would any retailer do all they do to attract customers and then turn around and say to a sizable group of quality customers “we aren’t going to let you do business with us they way you want to”? Do these retailers think they have a loyalty lock on any of their customers?

I would expect in most cases that the decision to deny Apple Pay was fostered by the IT departments of these companies. These are the same IT people who have exposed so many of us to fraud because they can’t manage their own security and now would make another decision to deny customers security they are comfortable with.

I think that going forward, the retailers should concentrate on customer service and let the customer pay for swipe-fees WHICH HAVE ALWAYS BEEN BUILT INTO THE COST OF GOODS ANYWAY. Any retailer who frets over swipe fees and makes consumer-centric decisions based on swipe-fees should be fired and replaced with management that has a clue!

Tom Redd
Tom Redd
9 years ago

Today’s consumers are into trends—they live by them. Apple Pay is a trend, thus the over publicity and good marketing helps MCX get awareness of payment via a new way vs the old wallet. But with trends you HAVE TO HAVE A CHOICE. You block a trend, then you suffer.

Accept both methods and the old wallet and you win. Soon after the trend fades, the habits will start. Once the retailer determines the top pay method they can shift their payment programs.

Leverage trends and create habits.

Vahe Katros
Vahe Katros
9 years ago

I Googled for interesting things over the last hour and found the following:

1. “The killer quote, attributed to former Walmart CEO Lee Scott:” “I don’t know that MCX will succeed and I don’t care. As long as Visa suffers.”

2. “Not only are those QR codes clunkier than NFC, but the technology is relatively easy to hack. Alipay, a subsidiary of e-commerce giant Alibaba, pioneered the use of QR payments for smartphones in China until hackers started inserting malicious Trojan horses into the codes. The Chinese central bank stepped in last March and ordered Alipay to stop using the technology.”

But the more interesting and strategic breadcrumbs I found relate to the dialog around HIPAA-compliant apps and Apple’s Healthkit. I suppose the clock is now ticking on how Doctor/Hospital order fulfillment is handled and managed.

So how should (these) retailers handle the issue:? Track Internet chatter especially involving celebrities like say…Kim Kardashian: If they love Apple Pay, CVS can pay her a few million to confirm their love for Apple Pay.

Doug Garnett
Doug Garnett
9 years ago

I’m always skeptical of these industry wide efforts. The majority of the time they end up in failure—handcuffed by errors from trying to make dozens of independent bureaucracies all happy at the same time.

This sense is confirmed from chatting with the people who have run some of those efforts. They can easily end up frozen in place.

Contrast that with the (apparent) simplicity of the Apple Pay solution. My guess is that the cheap availability of the system will end up pressuring the retailers to accept both (assuming they stick with the MCX idea).

But for the moment, that’s purely a guess and an opinion.

Ed Stevens
Ed Stevens
9 years ago

As long as customers have to carry credit cards with them (to support all those non-Apple Pay retailers and restaurants), then few retailers will be hurt by not accepting Apple Pay.

High-end retailers need to accept Apple Pay, of course, as Apple phones skew to high-end consumers.

For the rest of retailers, it is fair game to wait it out and try to get something more advantageous to their margins.

Pete Cleaveland
Pete Cleaveland
9 years ago

CVS is betting on Betamax, eight-track tapes. Retailers need to listen to their customers. CVS is listening to its bottom line and no retailer has ever won with that strategy. I am not saying the bottom line is not important, but a retailer will not “save themselves” to success.

Gordon Arnold
Gordon Arnold
9 years ago

I live in the retail world and have for quite a few years. To date I have never heard word one as to the need or preference in using Apple Pay or Apple anything for that matter to inquire, purchase or pay. Consumers are looking for e-commerce sites that are secure and easy to access, fast and easy to navigate with the information they want right in front of them. The order of priority has recently seen security move to the front of the line. Retail companies are looking for communications capabilities that are very secure and connected to electronic payment providers that are economical for them to use. As a rule of thumb the closer you get to the enterprise systems and the core financial business machines and software the less relevant Apple is. The recent push to make Apple integrate with the mainframe is not new to business. What would be new is if Apple were to succeed.

Mike B
Mike B
9 years ago

I think shutting off the NFC is a mistake since this is a more secure (and efficient, really) way to process transactions. NFC is all over the place in Canada, Asia, etc. at almost all merchants. Why not in the US? We can afford very fancy large pinpads to show scrolling advertisements to customers at checkout and so we can sign an illegible signature on a screen (these signature screens with ads don’t seem to exist elsewhere either, just very simple little pinpads to swipe the card that probably cost the retailer almost nothing)…

I think we have it wrong here, as usual.

Too many hands in the pot, complicating everything.