A major achievement of Apple Pay's recent launch has been to propel mobile payments into mainstream media. But the ultimate success of the product will depend on whether Apple can fundamentally shift human behavior by making people feel that using their phones to pay for purchases is secure, comfortable and convenient.
Apple faces plenty of competition in the mobile payments space. More than 200 companies are on the scene, including very large players such as PayPal, Google, Softcard (formerly ISIS) and Starbucks. Each mobile wallet offers a slightly different value proposition.
Apple's strength is its high-profile brand name and popularity with its consumer base. Speculation about the company's mobile payments platform has been running rampant ever since it took out its first patent on near-field communication (a short-range wireless chip that is used to exchange data between the mobile phone and the card reader) back in 2009. Apple's clout has also helped it establish partnerships with eight of the top 10 leading financial institutions and prominent retailers including Disney, McDonald's and Macy's. These partnerships give Apple's in-store mobile payments a chance to succeed.
But other large companies are capable of forming equally formidable partnerships. A payments platform called CurrentC, set to debut in 2015 and created by the retailer-driven Merchant Customer Exchange, is backed by reputable brand names such as Wal-Mart, Target, 7-Eleven, Southwest Airlines and Gap. Down the road, this may turn into a bitter contest between behemoths for the mobile space.
All of these companies will face major challenges in trying to shift payment behavior, since recent history has shown that consumers will continue to use traditional payment options as long as they still work. Indeed, Google has struggled to persuade shoppers to use NFC tap technology rather than reaching for their wallet.
The public failed to embrace Google Wallet because it didn't solve any pressing need. Consumers can pull out their credit or debit card as fast as they can a mobile phone. They are also in the habit of swiping a card as opposed to holding the back of the phone to make a payment. People generally do not adapt quickly to change; old habits die hard. In the same vein, CardSoft another NFC mobile initiative has also experienced lackluster acceptance.
User experience will be key in determining whether Apple Pay takes off. If consumers find the payment medium inconvenient or discover that only a few merchants accept it, they will abandon it. Indeed, one of the challenges with NFC technology to date has been is its lack of widespread adoption by merchants. However, since merchants face a looming deadline to upgrade terminals to enable EMV chip-based payments by 2015, that may be less of an issue going forward.
Another potential obstacle for Apple Pay is consumer confusion over a myriad of payment options and technologies. CurrentC allows shoppers to make mobile payments with an app that generates a quick-response, or QR, code a two-dimensional barcode that can be scanned at the checkout counter. Likewise, the Starbucks mobile payment app uses a QR Code that can be read by most scanners at the check-out line today, and it can be loaded onto any mobile phone not just the iPhone. Starbucks also happens to be the only company with a successful mobile payment initiative, which means that Americans' familiarity with mobile payments is largely limited to a different kind of technology. Shifting behavior from pulling out a QR code mobile app to tapping an NFC phone may be another stumbling block to consumer adoption of Apple Pay. And some shoppers who are not particularly motivated to use their smartphones for payments in the first place may give up altogether.
However, don't rule out Apple just yet. Apple has a track record of redefining the markets in which it operates. The company's iTunes has served as the tipping point for the entertainment industry, changing the way that people purchase and access music, movies, television and more. The iPhone revolutionized the smartphone. The recent launch of Apple Pay may well serve as another inflection point for the payments industry.
But given that Americans use a multitude of cards today, by the same logic it may be that no single dominant player emerges in the mobile wallet industry. Apple Pay may be duking it out with CurrentC, PayPal's Payment Code and any number of as-yet-unknown mobile payment options for a while.
The good news with all of these developments is that consumers will soon have more choices. This will bring about more convenience and competitiveness, creating better products, greater security and lower costs of transactions and that should be beneficial for everyone.