Apple Pay and EMV Face a Critical Test as Holidays Approach

A year after the Target data breach prompted retailers to step up their migration to EMV-chip acceptance, many consumers finally have EMV cards or can access the same security through Apple Pay's new mobile wallet. But will they finally change their habits?

The iPhone 6 and iPhone 6 Plus handsets create an EMV transaction when used for a contactless payment, so many shoppers may not even realize they are improving their security when making a mobile payment. And Apple's impressive marketing muscle has generated a great amount of interest in mobile payments.

As many as 30% of American smartphone owners expect to use Apple Pay or Google Wallet during the holiday shopping season, according to a survey from Stratos. A separate survey from Retale puts that number at a more modest — but still impressive —18%.

EMV cards improve security over magnetic-stripe cards by adding technology that is resistant to counterfeiting. In addition to generating an EMV transaction, Apple Pay adds tokenization, which replaces sensitive account numbers with a secure token, and fingerprint biometrics. Apple has heavily emphasized its security in its marketing of Apple Pay.

"There will be more attention on Apple Pay than EMV this holiday season," said Scott Holt, vice president of marketing in North America for terminal maker Ingenico Group.

"As a consumer, how often do you hear about EMV cards?" Holt asked. "It is certainly not as well known as Apple Pay, at least from what we have seen in the market today."

In addition, retailers have been doing a good job of training clerks on how to accept Apple Pay payments, Holt said.

Apple still faces the daunting challenge of building momentum well beyond the bump it got from early adopters. The timing of Apple Pay's launch works to its advantage, said Oren Levy, CEO of international payment gateway Zooz.

Zooz has seen a growing trend in the number of people making purchases from mobile devices during other key shopping dates worldwide, Levy said. "In looking at Singles Day in China, they were not just browsing, but actually making purchases, using Alipay for mobile payments."

And Apple has yet to win over companies like Walmart, which refuses to put in the necessary hardware for Near Field Communication payments, and CVS and Rite Aid, which switched off their NFC readers after Apple Pay's launch in favor of the upcoming CurrentC wallet.

"We are seeing a big uptake in mobile at the point of sale, but it won't be as much as the uptake in online purchasing because so many retailers are still blocking Apple Pay," said Mary Monahan, head of mobile for Javelin Strategy and Research.

This will prove problematic for Apple as it pushes to increase adoption, said Al Pascual, a senior analyst for Javelin. "The problem with it, right now, is that it is an incomplete solution because of merchant adoption."

And even though retailers are more aware of the risks of a data breach in the wake of last year's Target incident, "I would not say that retailers as a whole or the industry as a whole have gotten better about preventing breaches," Pascual said. As retailers set up defenses with EMV and other layers of security, criminals simply move to smaller businesses that lack the same protections, he added.

Many more merchants and issuers are on board with EMV since the Target breach, and interest in tokenization as a way to replace card numbers has risen as well, Pascual said. "A lot is going on, but we are still just starting the process," he added. "The conversation will be very different in a few years."