Does Apple Pay need Walmart and Best Buy?
Following the excitement over the introduction of Apple Pay, the conspicuous absence of Walmart and Best Buy in its launch led to several second-day stories exploring the challenges the new mobile payment system faces.
Apple Pay will be launched in October at Apple Stores and other retailers representing more than 220,000 stores in the U.S., including Disney Store, Macy’s, McDonald’s, Nike, Petco, Staples, Subway, Toys "R" Us, Target, Walgreens and Whole Foods. But news that the largest retailer as well as the largest consumer electronics chain are not planning to adopt Apple Pay led to further concerns about adoption by other — smaller — retailers.
The reasons given for the potential hesitancy by other stores to use Apple Pay were:
Cost: NFC (near-field communications) readers required to accept Apple Pay range from $300 to $500 per device. Best Buy installed NFC-enabled scanners years ago but switched them off in 2011 due to the costs involved. The cost hurdle will be higher for smaller stores. While fewer than 10 percent of retailers have NFC-enabled POS terminals, stores are said to be waiting for greater consumer demand to justify the investments.
Mobile-payment competition: Walmart and Best Buy are supporting CurrentC, a mobile payment system being developed by a network of retail store chains called Merchant Current Exchange (MCX). CurrentC is scheduled to launch in 2015. Also endorsed by Target, 7-Eleven, Southwest Airlines, the Gap and Shell gas stations, CurrentC promises to help retailers avoid "swipe" fees. It also only requires a software download rather than an NFC-enabled terminal. Finally, CurrentC promises to work with existing iPhones and Android devices while Apple Pay only works with the latest generation iPhones or the Apple Watch.
Slow change: With little traction being gained by Google Wallet and other mobile pay options, consumers have shown they’re reluctant to use mobile payment. With the chip-and-pin technology necessary for NFC already commonplace in Europe, U.S. retailers have also proven to be cautious around mobile pay rollouts. Having multiple mobile pay options will also slow overall acceptance.
For Apple, the upside is that banks are pushing retailers to upgrade their POS systems for security reasons and POS terminals are expected to soon be NFC-payment ready regardless. Apple Pay is also expected to be more secure than the QR code used by MCX. With Target among those supporting both Apple Pay and MCX, other retailers may decide to use both systems.
Ultimately, many Apple enthusiasts believe mobile payment will be consumer-driven. And if Apple was able to bring touch screen technologies and MP3 downloads to the world, they’ll be able to convince consumers to use mobile payments.
"You start to build the habit and then that’s what builds the tipping point," Silvio Tavares, chief executive of the CardLinx Association, a payments industry group, told The Wall Street Journal. "If anyone can do it, Apple can."
- Will Stores Warm Up to Apple Pay? – The Wall Street Journal (sub. required)
- Retailers seen unlikely to warm up to Apple Pay – Reuters
- Clash of the titans: Wal-Mart rejects Apple Pay to pursue a competing mobile payment system – The Washington Post
- Apple Pay? Wal-Mart and Best Buy look other way – Tech Times
Discussion Questions
What do you see as speeding or slowing retailer adoption of NRC-supported payments and Apple Pay? How high is your confidence that Apple can convince consumers to accept mobile payments?
Retailers don’t want to spend money to acquire the necessary NFC terminals. Consumers are concerned about security. There are multiple systems available to consumers and retailers. These factors will slow the growth of mobile payment options. That said, if any company can move a marketplace, it’s Apple.
Apple seems to have taken care of security concerns with biometric activation, single-use codes and secure storage of consumer payment data.
Walmart may be the largest retailer in America, but it and Best Buy represent a small fraction of retail stores. If Apple users quickly adopt Apple Pay, both Walmart and Best Buy will have to come along, due to consumer demand.
There are two separate questions here: 1.) What is the likelihood that retailers will adopt and support NFC payments? Answer: High. The up charge to include an NFC reader in EMV supporting devices is about $40 per terminal (per TSYS—one of Apple Pay’s processor partners), and 2.) What is the likelihood that consumers will adopt NFC payments? Answer: Not so high.
There’s just no data that indicates consumer interest, particularly in the all-important Millennial demographic. In fact, there’s lots of data that says it isn’t going to happen.
People can always change their minds, but so far, I just don’t see it. I know everyone would like a piece of the payment processor pie, but consumers have to buy in.
The big box stores’ overall concern is the payment processing fees as these stores do huge volumes of transactions. MCX is driven by transaction fees and consumer purchase data retention, not the mobile technology.
NFC fails to demonstrate any time/effort benefit over a magnetic swipe card for high-sales volume retailers to take seriously. NFC is not more secure than QR codes, an NFC code is a radio transmission that can be snooped from a distance due to RFID’s contactless nature. A barcode/QR code has to be viewed and read by a machine at a specific angle and orientation. However, QR codes cannot work when a mobile user screen is cracked, a common occurrence.
While NFC is great for vending and small boutiques, it would not be the best option for fast transaction processing at a high volume retailer. Apple’s challenge is showing a lower TCO with its proposed transaction fees over MCX to convince MCX partners to switch.
Success calls for a balance of serving the needs of both consumers and merchants, which sometimes are at odds. Clearly Apple is serving consumers with the simplicity of their solution, but what’s in it for merchants? Once the banks stop absorbing Apple’s fees, will merchants be less enthusiastic?
Don’t mistake the iPhone for an open NFC platform—it’s there to help Apple Pay only. But there may be enough interest from users of both iPhones and Android devices to push retailers to enable NFC readers.
Retailers will adopt Apply pay and NFC-supported payments if consumers do. If I knew why consumers have been to slow to adopt mobile payments, I would be working for one of the companies trying to roll this out.
Apple can convince some percent of its customers to adopt mobile payments, but iOS market share is approximately 32 percent in the U.S. and only approximately 11 percent globally. Android is the market share leader and Google has been working on NFC supported payments for quite awhile.
This is an excellent step forward in a long road ahead. Apple’s involvement will spur trial and usage, but by itself it’s not enough to to drive widespread consumer acceptance of mobile payments, in my opinion.
Follow the money on this one. How fast or slowly will the consumer be to shift from paying for bills and items with credit/debit cards to a mobile device?
Consumers made the decision a good number of years ago that it was easier for them to travel around without a fist-full of dollars to pay for goods and services. Credit cards, then debit cards, made the process easier for the consumer and for the retailer. In the process customers, who could control their credit/debt levels, felt happier as well.
A mobile payment system potentially offers greater security, lower costs and gives the consumer a mobile wallet. It’s not about Best Buy or Walmart accepting or rejecting the Apple product, or being given the chance to have it.
All parties will come together when the dollar flow is ironed out. This story has a couple more years to play out.
What retailers really want is to have a payment system that allows them to escape, or reduce their credit card processing expense at a reasonable cost. This gets to be more and more of a problem as consumers elect to use their card for paying for more and more small purchases such as a cup of coffee. Find a way to do that which also meets the security concerns of both retailers and consumers and you have a winning technology.
Apple Pay will create a lot of hype and that may move the entire mobile pay concept forward. On the other hand it may help fracture the consumer and retailer into two or more camps, as did Betamax and VHS did with video tapes, and end up slowing down mobile payment adoption.
None of the technologies reduce costs or increase security to necessary levels and can be applied to all communication systems. Security is an issue that is too often dodged by the internet software providers and the need to implement to IP-6 across the board and prepare for IP-8. This need is suppressed in favor of the current useless security system(s) to save baseless careers, ineffective technologies and investor money. For more reasons as to why these new and effective technologies are not allowed, simply contact your senate and congress representatives through their favorite lobbies for more information/spin.
Mobile payment by phone needs to be adopted by consumers first. Just like the Starbucks card drove a lot of volume, but for Starbucks only, Apple Pay needs a couple of “killer app” use cases on why paying by phone is better than pulling out the credit card. Once you have a good use case for Apple Pay and generate the frequency and volume, big box retailers will play catch up. I don’t personally see Walmart being the driver/hurdle for Apple Pay, it is some sort of specialty retail/hospitality or maybe even transportation (paying fares or tolls) that I think is going to drive adoption of Apple Pay.
To me, the bigger question is, what does this mean for MCX and “CurrentC” (really? I mean, REALLY?). I understand why Walmart’s out—for now. It’s not about lack of confidence in the payment technology. It’s about competition to the payment scheme they’ve been pushing for however many years now. And while 98 percent of Americans shop at a Walmart at least once a month (that statistic is from 2005 or so, though, so admittedly dated), that doesn’t mean that Walmart’s core customers are die-hard Apple fans. So it may not have much impact either way.
Best Buy is a more interesting one. Are they along for Walmart’s ride? Is Samsung paying them a lot of money to stay off the bandwagon? They seem like they would have more Apple phone-owning customers than Walmart would, just because of the tech angle of the store. But who knows? Maybe I’m wrong about that.
Point is, it’s not about Apple or the payment technology or any of that. I believe it is more related to competition and conflicts of interest than anything else. And if enough customers come banging down doors to ask to pay with Apple Pay, then even the mighty Walmart may find themselves giving in. The last thing any retailer wants is to come between consumers and the money they want to give to the retailer, whatever form that might take.
Walmart vs. Apple on a technology issue? The problem is that Walmart has already invested heavily in their own payment system. No easy resolution, but Walmart loses.
The biggest reason consumers haven’t adopted mobile payments is the setup process. It’s long, complicated and entirely confusing—often requiring users to establish new accounts or acquire new cards. They’ve so far been designed to benefit the payment processor and really no one else.
Apple Pay changes that. By using a customer’s existing card (already on file with iTunes, most Google/Android users don’t have a card on file) the setup process will be quick and easy. By keeping everything on the device and within Apple, it will also be easy to understand. Apple will also likely introduce the setup process during the initial phone setup with a simple yes or no option, so consumers will likely enable it from the start.
Any retailer that resists Apple Pay is doing so at their own expense. The system solves the security problem that has plagued credit cards and major retailers for years. Consumers want ease of use and security—they also love their iPhones—people will want to use this, so if retailers don’t allow it, customers will look elsewhere.
It’s easy to look at Apple and see that they have 32 percent of the user base! Which doesn’t sound like much—but their users actually use the features in their phones and statistically have more buying power than those on other platforms. Apple also has 800 million iTunes accounts with credit cards on file, over 11 percent of the global population. Every one of those accounts can activated for Apple Pay at anytime on a new iPhone.
With all that said, what Apple really cares about here is online payments. iOS users already spend more online from their devices than anyone else. The biggest drawback is having to type in your credit card information on a phone while you’re doing other things. A tap and scan (fingerprint) option built into an app or website will eliminate that dilemma.
This will be a good thing for brick-and-mortar retailers who adopt Apple Pay, as it will bring continuity and perceived simplicity to what will have already become a positive buying experience for consumers.
As with the PC and mobile OS world, we’ll see that there is only room for two mobile payment systems. Apple’s and eventually Google Wallet, assuming Apple keeps theirs exclusive—if they port it to Android all bets are off. Google Wallet hasn’t been successful as of yet, but they will likely emulate whatever Apple’s strategy is within a few months to rectify that.
All of the other options are DOA. Why would consumers trust a system built by retailers? The same ones that can’t keep their credit card data secure now? The system developed by the mobile carriers is a hot mess too, it takes forever to set up and requires you to get an Amex prepaid card. Who wants that? It also doesn’t work natively with iPhones, so that pretty much kills it too.
The jury is still out for most consumers as to how secure payment processing is period! Simply adding Apple’s name does not, in and of itself, bring acceptance.
As a consumer, I want to see how the retailers are going to use this payment process and carry it through to the bank more securely. Not just at the POS.
For my 2 cents, not feelin’ it in a big way!
Apple doesn’t have to convince anyone of anything. The shift in liability that will occur in October 2015 will insure Apple’s retail adoption. In case you don’t know the liability for loss due to credit card fraud will shift from the card company to the retailer in October 2015. This means that if the retailer accepts a stolen card for payment, the retailer will bear responsibility for the consumer’s loss. Currently this loss is covered by the card issuer.
When retailers realize that they are going to have to pony up billions to cover fraud losses they will adopt any and every form of e-payment that can reduce their liability. Furthermore, if a retailer does not adopt more secure systems they will have no legal defense against covering accepting stolen credit cards.
Thought Apple was just winging it didn’t you? Please note that all the major credit card companies are on board with Apple. Now go read this.
There are a number of issues slowing consumer mobile payment adoption, but I see the two biggest being a perceived complex and non-linear process for connecting payment sources and the actual value to the consumer of using the phone for payment.
The process of using a phone to complete a payment in many ways adds complexity to the transaction rather than simplifying the process, as far as consumer understanding of what is happening behind the scenes. I think the obliqueness of the process actually adds discomfort on the consumer side rather than alleviating it. Secondly, there is not a high enough return to the consumer to using a phone versus a credit card, at this point.
Once Apple, Google, MCX, Samsung, (and others) solve these issues by making mobile payments easier to understand for the consumer and at the same time convincing the consumer that there is additional value to adopting mobile payment via a phone, then mobile payment adoption will accelerate.
What I see is Apple, PayPal and others taking business away from Visa and MasterCard. Visa and MasterCard, American Express, and Discover need to create a universal payment system if they want to survive. Retailers will be slow to implement until customers prove they want a new payment system. First we had cash followed by checks. Now we have credit and debit cards primarily through banks. The cell phone is and will change how consumers operate just like the personal computer did. Look at what has happened to the Yellow Pages.
Both IOS and Android support NFC which is the current standard and will be the standard adopted by all payment systems. There will be some that support Apple Pay, but with the NFC option built into the same phones, why pay more money for another system which is exclusive to just Apple?
Retailer adoption is necessary but not sufficient to the success of Apple Pay. It’s a really hard chicken-and-egg problem, though. With Starbucks mobile payment app, arguably the only one that has gotten broad use in retail, there is a self-contained system of stores, loyalty program, and extremely loyal high-frequency customers. Without some deep partnerships with trusted brands (and perhaps loyalty program integration?), it’s hard for me to see how any cross-retailer solution is going to get off the ground.
So let me get this straight: retailers will pay for NFC terminals, but they will upend their entire operation to offer order online pick up in-store?
Which really serves those actually using the brick and mortar stores retailers have so highly invested in? I’d suggest NFC.
The primary barriers to NFC adoption all revolve around cost. Retailers simply do not see the consumer demand to justify the investment and since they are in cost-cutting mode, are loath to spend the money.
I believe that the adoption of Apply Pay by millions of consumers over the next 60 days will lead retailers to make the investment. The scale is large and the time period of adoption for Apple users, who tend to be early adopters, will be very short.
Walmart can probably get away with not using Apple Pay more than most retailers could simply due to customer demographics. While I’m speculating and don’t have hard data, credit/debit card payments likely make up a lower percentage of transactions for them to begin with, based on what I’ve observed anecdotally, and it’s also possible fewer of their customers will have the most recent iPhones (which are required to use Apple Pay, unlike CurrentC, which is platform-neutral) or have the facility and/or comfort level to use their devices for that purpose.
Best Buy, however, is in a different boat, so I’m not sure what advantages they see to not adopting Apple Pay.
Regardless of which system ends up dominant, though, I think it will take quite some time for the public to become comfortable enough with it for it to catch on.
To clarify an above post, fraud shifts to the retailer for a card present transaction in October 2015 ONLY if the retailer does not have a Chip processing terminal in place. Otherwise, as before, the liability is with the processing bank.
I’ve been using a NFC (RFID Chip) enabled card for years and its odd to see some retailers have disconnected it recently. Or other odd things, like McDonalds will process NFC with a MasterCard but not with a Visa.
One thing that may convince retailers with small transactions to embrace NFC here is these process in a few seconds, just like a swipe. The Chips seem to take considerably longer to process, longer still if a PIN is needed. About 20 seconds. That’s just too long for many places.
In Canada, most merchants offer swipe, chip, or NFC. As usual we are very behind….
Costs at retail are considered as well upon return. The reason Best Buy thought the NFC terminals expensive was lack of use. As with Walmart, if NFC terminals become popular and are asked for, they will be installed and it is unlikely any retailer would then not take Apple Pay. The support for CurrentC is based on the optical readers both have, but then again Apple Pay can work that way as well through the Passbook app. It is approaching holiday time and neither retailer is going to roll out new POS equipment, so it makes sense to announce this for now, as reversing it next year or after due to consumer demand is certainly in line. Therefore, I think that any consideration that either of these companies would not support this is not well considered. The only real factor will be lack of adoption so we should see how that plays out in not too long.
I see two things: the desire for consumer convenience, accelerated by the desire for retailers to avoid the liability for credit card fraud. I can understand retailers wanting to bide their time and survey the field before jumping in.
However, if consumers start to demand the time savings and convenience, or retailers are put into a position where they are liable for any charges made to stolen credit cards, then whichever is the most advance system at the time is likely to make rapid progress. Apple certainly has an early lead and a strong position, but there is always the possibility that another service will emerge. One way or the other, I do think that mobile payments are inevitable.