Apple Pay is a Defining Moment for Mobile Payment Adoption

The vision that Apple’s founder Steve Jobs once had of a new type of mobile phone that could become so instrumental and integrated into people’s lives that they’d rather leave their wallet at home than their iPhone is starting to take shape.

After years of speculation, Apple officially made its entry into the US mobile payments’ ecosystem as it unveiled Apple Pay at its recent new products launch event. Mobile payments, which has long been promised for its potential to revolutionize the entire consumer shopping experience has so far struggled to gain much traction from retailers and consumers alike. But now a brand with a proven track record of changing consumer behavior has joined the movement.

Apple’s approach is exactly what this mobile payments movement has needed. Lest we forget that Apple wouldn’t be in this game unless it had something to win. Apple reportedly will collect a fee from card issuers for every Apple Pay transaction that takes place.

Apple has long been one of the best positioned tech companies that could enter the payments space thanks to several factors. Apple itself operates more than 400 bricks-and-mortar stores. Beyond that, Apple has been selling songs, movies and apps to its 800 million iTunes users for years and could easily transition that experience into other digital transactions. As a result of iTunes, Apple has a depository of financial card details for all these users. Those credit cards will come preloaded into Apple Pay.

Over the years, Apple also has been slowly lining up the payment puzzle pieces. In June 2012, Apple introduced Passbook, which stores boarding passes, movie tickets, retail coupons and loyalty cards with updates in real time and leverages geolocation to automatically present the proper card when the consumer is in the relevant venue. In September 2013, Apple unveiled a built-in fingerprint scanner called the Touch ID sensor. Besides unlocking a user’s phone, this functionality can be built into apps so consumers can make purchases with just the tap of a finger. Apple Pay will leverage this feature and tokenization to create a more secure payment transaction.

Perhaps most importantly, Apple has such a loyal following that its product alone could take mobile payments from just being a pipe dream for many in the payments industry to mainstream in just a matter of months as consumers upgrade to the new iPhone 6 and iPhone 6 Plus or buy one of Apple’s new watches.  Apple’s move into this space alone will create increased awareness of mobile payments. The unveiling of Apple Pay means that millions of consumers and retailers will likely be introduced to mobile payments for the first time and drive a potential behavioral shift.

Apple, which is well-known for its disruptive tendencies, ultimately chose a wait-and-see approach for mobile payments. Apple didn’t invent the first PC, the first music player nor the first smartphone. In each industry, it waited for the markets to mature a bit and then disrupted them by ushering in an improved customer experience that eliminated a consumer pain point. In the case of mobile payments, it has allowed other companies—and even competitors such as Google—to come to market first with mobile payments products and stumble. Instead of rushing a product to market, Apple observed the hurdles that held back adoption.

Ultimately, Apple Pay provides a more complete solution that brings together several different mobile payments options from various retailers within a single app. In addition, all this will be integrated into the existing Passbook app, which has already become popular with marketers wanting to target their consumer base. There’s still much to be discovered in terms of how retailers plan to integrate mobile payments into the contextual shopping experience many are designing around the mobile device. This will undoubtedly be an important element to driving adoption of Apple Pay.

At the end of the day, mobile payments must be as cheap, safe and easy to use as traditional payment methods in order to be considered a viable option. Merely making mobile payment infrastructure ubiquitous likely won’t be enough to entice a broad consumer base. In order to encourage wider adoption and ensure usage, mobile payment players will have to provide a value add, which could come in many forms, including monetary savings, ease of use or increased loyalty. I predict that businesses will leverage Apple Pay alongside the marketing elements that exist in Passbook today and the contextual shopping experience that iBeacons can offer to deliver the type of consumer shopping experience that could provide enough of a value add to challenge existing payment methods.

Apple may not have been the first mover into mobile payments, but this move will likely be remembered as one of the defining moments for mobile payments adoption, especially in the US. To date, no other mobile payments system has been announced with so many partners involved from the onset. Also, the integration of so many different retail partners within the same digital wallet will likely be a boon in terms of consumer adoption. Given that Apple Pay will only be available to those in the Apple ecosystem, it will cut out Android and Windows users that make up the other half the smartphone user base in the US. That being said, if any brand can create a consumer behavioral shift to the point that a significant number of consumers pay for an in-store purchase with a mobile phone versus using cash or even a credit card, it is Apple.

Michelle Evans is an analyst covering financial cards and the payments industry at Euromonitor International. Follow her on Twitter @mevans14.