Apple Pay Adoption Continues; Looming Concerns?

Apple recently announced record-breaking sales for its 2014 fiscal year. Among the numbers for iPhones and iPads, the company also offered thoughts about the growth of Apple Pay, the mobile payment and digital wallet service.

I first addressed Apple Pay here last October, in “Explaining Apple Pay: Pros and Cons.” In this post, I’ll offer an update on Apply Pay, to monitor its progress.

Adoption Continues to Grow

Apple Pay adoption has grown significantly since it was launched in October. A report from BI Intelligence shows that payments made through Apple Pay accounted for 0.1 percent to 1.6 percent of all transactions at five top retailers in November, the month following the launch. Given that Apple Pay only works on the new iPhones, these numbers are remarkable.

To further drive growth, Apple announced a partnership with USA Technologies (a wireless payment provider for self-service retail locations) to start accepting Apple Pay at roughly 200,000 self-serve terminals, such as coffee machines, vending machines, kiosks, car washes, transit tickets, and taxi terminals. Self-service checkout terminals could be an ideal use for Apply Pay, as customers can just wave their phones in front of the checkout area versus handing their credit card to someone for swiping or inserting cash and coins.

During the earnings call, Apple CEO Tim Cook stated that 2015 was the “Year of Apple Pay.” He mentioned that at Panera Bread, the restaurant chain, 80 percent of mobile payment transactions are made via Apple Pay — demonstrating growing adoption. He also stated that Whole Foods Market, the grocery retailer, has seen mobile payments increase by more than 400 percent since Apple Pay was introduced in its stores. Cook shared that Apple Pay now counts for two of every three dollars spent via contactless payments on the U.S.’s three largest card networks — Visa, MasterCard, and American Express. That is exceptional growth in a very short period of time.

Another factor that will likely drive Apple Pay’s growth is the launch in major markets outside the U.S. Apple plans to launch the service in Canada and the U.K. within the next few months. And based on iPhone sales numbers from 2014, China is a huge market for Apple and it is likely that Apply Pay will be launched there first in the Asian market.

Apple CEO Tim Cook called 2015 the "Year of Apple Pay."

Apple CEO Tim Cook called 2015 the “Year of Apple Pay.”

Apple Pay Concerns

All of this is good news for Apple Pay. But there are looming issues that could reduce Apple Pay’s growth.

  • Competing for market share. Apple Pay is showing great momentum but it is still competing for market share with other mobile wallet providers, like Softcard and Google Wallet. Google Wallet has supported NFC payments for the last few years and the launch of Apple Pay has rekindled interest in Google Wallet, as retailers want to have a mobile payment alternative for Android users.

Additionally, a group of large retailers that includes Walmart, CVS, Rite Aid, and Sears is launching a new service called CurrentC that could become a significant threat to Apple Pay as this group of retailers records over a trillion dollars in annual sales. CurrentC will launch later this year.

  • Gaining adoption outside the U.S. NFC payment technologies and mobile wallets have been in use for the last few years in Europe and Asia. As Apple Pay is launched there, it will be competing for adoption with existing vendors that have already built a successful ecosystem of retailers and customers. Additionally, several countries are using the so-called chip-and-pin credit cards (also known as EMV cards) that have significantly reduced credit card fraud. This could impact adoption if the customers are already feeling secure with their current payment method.
  • Closed system. Apple Pay works only on Apple devices and that restricts its growth. For Apple Pay to grow more aggressively, it has to make this an open system so that a consumer can use Apple Pay on any mobile device. This will also attract more retailers to sign up for Apple Pay.
  • Phone battery. The battery life of the iPhone 6 and 6 Plus has improved over the previous versions. But still the battery can drain out within a day with app usage. This presumably needs to be improved before a consumer can feel comfortable in leaving their cash and credit cards at home and just relying on iPhone mobile wallet for all retail transactions.
Gagan Mehra
Gagan Mehra
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