From the consumer point-of-view, Apple Pay is remarkably easy to use for mobile payments in stores.
But what about the business side, the merchants, and payment and financial services industries? BI Intelligence has dug into how Apple Pay will impact the ecosystem as a whole, including legacy players.
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Here are the takeaways:
- APPLE PAY CEMENTS NFC AS THE STANDARD: Until now, iPhones have not included NFC or near field communication, a technology that allows phones to exchange information with payment terminals. NFC is now a safe bet for merchants because the iPhone 6 and 6 Plus will be NFC-compatible. Around ~90% global smartphone shipments will carry NFC from here on out. Consumers will find NFC-capable registers at key large retailers. Apple Pay has a real chance at solving the chicken-and-egg adoption problem that has held back NFC mobile payments to date. It also gives Apple quick entry into a market where competitors Amazon and eBay have yet to gain traction.
- Over 6 million NFC-compatible store registers will ship in 2014 alone (see chart, above).
- APPLE PAY WILL FACE RESISTANCE AMONG SOME LARGE RETAILERS: Some may be wary of sharing their consumer data with Apple, and others have their own mobile payments strategies that may conflict with Apple Pay. These include a mobile wallet app called CurrentC, put out by the Merchant Customer Exchange (MCX), a powerful consortium of over 50 large U.S. retailers, including Walmart, Target and 7-Eleven. These merchants are bound to an exclusivity agreement and cannot accept other parties' mobile wallets, according to anonymous sources cited by the NFC Times.
- APPLE PAY FOR E-COMMERCE HAS A CLEAR ADOPTION PATH: Apple Pay is a win for e-commerce companies. It's another low-friction way for people to buy things without having to enter payment details again and again.
- APPLE PAY WILL TRANSFORM THE MARKET FOR PAYMENTS INTERMEDIARIES:
- The big banks and credit card companies are not threatened. Many are already partnered with Apple and more will likely follow. They may lose a small slice of their fees, but will benefit from reduced fraud costs.
- Payments intermediaries will be under more pressure to innovate in mobile and software: Merchant-facing payment services vendors are going to have to make sure that they can help retailers process payments that come through Apple Pay, but it doesn't look like they're going to face significant price-pressure in the near-term.
- Terminal providers are likely relieved: Manufacturers of register hardware like VeriFone and Ingenico are likely breathing a sigh of relief because they've both invested heavily in NFC technology.
- SECURITY WORRIES WILL PERSIST, BUT APPLE'S SECURITY FEATURES WILL EVENTUALLY WIN iPHONE OWNERS OVER: Security will not be a major barrier in the medium-term. In Apple's payments system, payment card data is encrypted and payments are authenticated with Touch ID (see chart, right). It's a much more secure system than magnetic stripe plastic cards, which can be "skimmed" and cloned.
BII
The full version of this note was sent to BI Intelligence subscribers within hours of Apple's Apple Pay announcement. Stay ahead of the curve with BI Intelligence.