Another Reason for Retailers to Avoid Apple Pay

Walmart and Best Buy were up-front about their disinterest in Apple Pay; CVS and Rite Aid followed after the fact. Reportedly, these Merchant Customer Exchange participants are placing their bets on the group's upcoming CurrentC wallet, but there's another reason they may want to distance themselves from Apple Pay.

The contactless card readers that retailers installed years ago to support tap-and-pay payments from plastic cards and keychains have long gone ignored by consumers and cashiers. Some of these devices have even fallen into disrepair, as PaymentsSource discovered in its early tests of the carriers' Softcard wallet (previously called Isis). Even when the merchant's hardware is working, the extra step of authenticating on a phone can slow the line at the register, whether the shopper is using Apple Pay, Google Wallet, Softcard or another wallet that requires PIN or fingerprint authentication.

Many merchants will adopt the proper hardware for Near Field Communication payments as part of their upgrades to EMV-chip card acceptance, but the deadline for this upgrade is still nearly a year away. Even those merchants that have fast-tracked their EMV updates don't expect to have new readers in place until next year.

If the retailers that oppose Apple Pay are doing so because of hardware limitations, this may be the right decision. Many experts in the payments industry waited years for Apple to make its move in mobile payments, so the launch of Apple Pay may feel overdue. But in the current environment, with merchant hardware still in transition, it may actually be that Apple Pay launched at least a year too soon.

As a result, Apple Pay acceptance will be spotty at first, even at the retailers that support it. And many merchants may not think Apple Pay's security benefits outweigh the added complexity at the point of sale. Right now, security is Apple's only selling point. Though there are signs that Apple will add a rewards system in the future, there is no such incentive right now for merchants to encourage their customers to pay with their iPhones.

Compare this to Softcard, which has provided discounts and freebies to encourage consumers to use its mobile wallet at certain merchants. Its free smoothie offer at Jamba Juice resulted in "more than 50 percent month-over-month growth in Wallet use," James D. White, Jamba Juice's CEO, said on Softcard's blog in May.

Not all Merchant Customer Exchange participants are shunning Apple Pay. Notably, Target is listed as a featured Apple Pay merchant in Apple's app store, and MCX lists many more participants than the handful reported to have blocked Apple Pay.

But if the retailers that oppose Apple Pay are doing so because they're siding with their own technology, this decision will hurt them. The same competitive mindset doomed the entire ecosystem for contactless cards, Royal Bank of Canada's Linda Mantia warned last week in a presentation at SourceMedia's PayThink conference.

Contactless card adoption didn't tank, but "it's nowhere near the penetration we would want for the investments we made," said Mantia, RBC's executive vice president of cards and payment solutions.

She contrasted this to EMV-chip adoption in Canada, which was a collaborative industrywide effort that included a clear incentive to merchants.

"The critical nature of driving an ecosystem did not play out with contactless," she said. "Mobile payments [aren't] going to work either without that."

Daniel Wolfe is Editor-in-Chief of PaymentsSource.