Apple Pay’s Harvest: Too Many Rivals, Too Little Adoption

Apple Inc. grabbed the early worm in mobile payments with Apple Pay's late 2014 launch, combining an intuitive mobile payments system for consumers with the buy-in of major banks and merchants. But the tech giant’s first-mover advantage never seemed to materialize.

After Apple Pay's launch, even the most tech-savvy early adopters found little reason to keep using it. Pulse's annual Debit Issuer Study, for example, found that consumers were making just 0.34 transactions per month (or roughly one transaction every three months) per eligible debit card loaded on Apple Pay as of January 2015 — the time when Apple's marketing was at its height and the market was largely clear of competition.

Today, Android Pay, Samsung Pay, Chase Pay and Walmart Pay — to name a few of the most significant rivals — are revving up for serious competition in the coming months. In South Korea, LG Pay has launched. Rumors suggest Target Corp. is developing its own mobile wallet. And Walmart, Target and 70 other retailers are still in support of Merchant Customer Exchange’s CurrentC, which is still in testing.

The winner of this mobile wallet race will get a leadership role in the converging worlds of financial services and mobile commerce, which are undergoing rapid transformation thanks to the spread of “connected commerce” that allows consumers to begin and complete any purchase across multiple channels.

Apple’s achievement in launching with a system that so many parties could support was no small thing, said Richard Crone, a principal with Crone Consulting LLC.  Its year-long head start also positions it well.

“All the mobile wallet rivals are at the race line now, but Apple is already going around the track, and that’s still a big advantage,” he said. And Apple has a few tricks up its sleeve yet, Crone suggested.

In the 15 months since Apple’s launch, it’s built a big lead in terms of usage and awareness. Apple Pay also is said to be driving healthy e-commerce volume through its one-click in-app payment approach with Apple Pay, even if its in-store purchase volume is less spectacular. But numerous surveys suggest Apple Pay’s volume for in-store payment isn’t growing, which spells trouble.

Another potential problem for Apple: Each of the new mobile wallet contenders is finding ways to drive mobile payments adoption without copying Apple's model of forcing banks to pay a toll, which could have big repercussions for Apple Pay down the line.

Banks reportedly are paying Apple 10 to 15 basis points per transaction, which is a bitter pill considering that the contract has been described as extremely one-sided in Apple's favor. Banks apparently deemed the toll worthwhile for the opportunity to plant their flags—complete with their own card brands—high up the Apple wallet, early on. At least one of Apple's pre-launch partners, U.S. Bank, even described working with Apple was like winning the golden ticket from Willy Wonka.

But as other mobile wallet choices proliferate, Apple's shine may fade.

The fresh competition isn’t all bad for Apple, as some of its rivals’ moves work in the pioneer’s favor. The millions of dollars Google and Samsung are paying for marketing and advertising their mobile payment wallets is indirectly helping to raise awareness of Apple Pay.

As the holiday season begins, it's becoming common for Apple’s rivals to pay consumers bounties of $20 to $25 each to enroll or transact with Android Pay and Samsung Pay. As more Android-toting consumers sign up for these offers and start making mobile payments, they serve as walking billboards to their own peers as well as to the iPhone's audience.

“Apple already has its base, and it’s hitching a free ride on every dollar spent by rivals to build awareness of mobile payments,” said Crone.

All of these wallets use Near Field Communication for in-store payments, with Samsung Pay using a contactless magstripe signal as a fallback for stores not equipped with NFC hardware. With so many prominent mobile wallets relying on NFC, merchants may see more value in making sure they can accept those kinds of payments. This of course helps Apple as much as it helps Apple's rivals.

While NFC is only one path to in-store mobile payments—Starbucks’ hugely successful bar code-based app is used for one in five of its in-store payments in the U.S.—the spread of NFC has played a key role in helping build mobile payments momentum in the U.K. and Australia.

That same effect is likely in the U.S., which is seeing more merchant investment in NFC as a consequence of the national shift to EMV. As merchants upgrade their terminals for EMV, they can choose to add NFC as part of the process.

And Apple has another major lever it could pull to enhance Apple Pay’s appeal, if it adds person-to-person payments, a feature already rumored to be in development.

“A sneaky trick Apple could use to drive enrollment in Apple Pay is simply adding P2P and letting users do the work by sending funds to each other,” Crone said.

It’s still very early in the mobile payments race, and far too early to declare winners, said Nick Holland, an independent payments analyst. “Mobile Payments is all about ubiquity and convenience,” he noted.

“I’m a little concerned about the number of wallets…I don’t think consumers want a separate app for every retailer they frequent; it’s just not feasible,” Holland said.