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IRUK Top500 Strategy and Innovation Report: 2018

IRUK Top500 Strategy and Innovation Report: 2018

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Apple Pay is here – but what does it really mean for retail?

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Today, 14 July, sees the launch of Apple Pay in the UK. MasterCard was first out the gate with PR about offering it, but most banks and issuers are now playing along with it – with the exception of HSBC and Barclays – see our Key Facts guide here. But what does it really mean for retailers and their customers?


Well let’s not get too excited: Apple Pay – in its first iteration at least – is really just a brand using NFC contactless payments for in-store payments. It also has limited reach: not everyone has an iPhone and pretty much no one as an Apple Watch.

But there are two much bigger issues in whether Apple Pay, once the hoopla around its launch dies down, gains any real traction: consumer adoption, as we’ve seen; and retailer adoption.

According to Henry Morland, VP of Products at Brightpearl: “While many commentators remain enthusiastic about the service, one of the biggest challenges for Apple Pay is the double side of adoption, both from the retailers and from consumers. Recent research has highlighted that more than 60% of iPhone 6 users who tried Apple Pay once didn’t use it again because they forgot or weren’t sure the store they were in accepted it. A separate report from Forrester found only 27% of iPhone customers trust Apple when it comes to mobile digital wallets.”

According to Gallup, 65% of consumers are at least somewhat familiar with Apple Pay, but awareness doesn't always lead to usage. Gallup finds that only 21% of iPhone customers actually use the Passbook app, and iPhone represents just half (48%) of the smartphone market. Though Apple is better positioned to drive adoption than some of its digital wallet competitors, it still has a way to go before Apple Pay becomes ubiquitous.

Only 6% of consumers surveyed by Gallup say they are very likely or likely to start using Apple Pay in the next 12 months. This reality isn't unique to Apple, as Gallup's analysis shows that most customers are still looking for value in a digital wallet provider.

Apple may hope that its digital wallet can entice potential customers to purchase or switch to an iPhone, but the feature doesn't appear to be compelling enough. Seventy-seven percent of consumers say the availability of Apple Pay has no influence on whether or not they will buy an iPhone.

In fact, a greater percentage of consumers say the availability of Apple Pay makes them less likely to buy an iPhone, compared with those who say it makes them more likely. Apple Pay may be an added benefit for current Apple users, but it appears unlikely to be a feature that will entice loyal Android users to switch.

Dan Wagner, CEO of PowaTechnologies agrees, seeing consumer adoption as being a problem as Apple Pay is too niche. “What shoppers really want is a ubiquitous solution which allows them to buy products anywhere, at anytime, from a range of mediums, using any digital device,” he says. “The decision to only use NFC also drastically reduces the scope of its usage for retailers as they have to support NFC terminals. Apple Pay doesn’t support online shopping either - once again limiting what consumers can use it for,” he says.

More worrying is that retailer adoption might also be a bit flakey. According to Jason Richelson, CEO and Founder of Shopkeep “In [our reseach in the UK], the vast majority of smaller consumer-facing businesses with 1-50 employees are positive about Apple Pay, but don't believe it will have a material impact on how they operate.”

While ShopKeep's Richelson believes this thinking "to be flawed" because separate research in the US finds business owners that have been quick to embrace mobile payments are growing three times faster than the national average, there is still an air of reluctance mixed with confusion among UK retailers and consumers about Apple Pay. As a result many users are going to be put off.

As Jen Bader, CCO at payment management company Secure Trading puts it: “No doubt, Apple is imagining customers will walk into a shop and ask the question “do you accept Apple Pay here?” which, in my opinion, is an unlikely future. With so many competitors adopting contactless (from card companies, to other tech schemes such as Android Pay), ‘contactless accepted here’ is the sign I expect to see on shop-fronts.”

This issue is made even more confused by the fact that HSBC, one of the biggest banks in the UK, isn’t offering Apple Pay to its customers. Why isn’t currently clear – though there are rumours that the bank accidentally did a spoiler on the launch on a customer service tweet on Sunday – but what it does mean is that by not being ubiquitous across all banks, consumers will be confused, won’t ask and so won’t use.

As Pinar Ozcan, Assistant Professor of Strategic Management, at Warwick Business School, puts it: “"While it is not clear why HSBC has decided not to support Apple Pay's UK launch, it certainly rings alarm bells as consumers often have a 'now or never' approach to new technologies, easily deciding not to adopt for a long time if it is cumbersome to do so at the beginning."

There can be no doubt that Apple Pay will garner thousands of mainstream media column inches and air time, but it remains a niche product. What it does offer is that it puts mobile payments well and truly into the minds of consumers, which can only be a good thing.

Rob Weisz, MD of mobile messaging and payments company Fonix puts it well when he says: “Apple Pay will be great for certain things, not everything. This is what everyone misses with mobile payments: it won’t replace anything it will be a collection of different payment services that offer increased convenience. The consumer will chose which to use and when. Apple pay will sit alongside credit card and charge to mobile and all the others. The key will be user behaviour – that is what will create a mobile payments eco-system.”

However, Apple Pay is not going to be for everyone. As Secure Tradings Bader neatly sums up with a cautionary note: ““While the combination of contactless with mobile technology will promise increased functionality, such as the ability to see your balance on your phone screen as you pay, or receive an instant e-receipt, whether these features will be enough to completely alter the payments industry is a different story. I think it is definitely premature to say that Apple Pay will be the death of cash and cards. While the omnipotence of smartphones for the younger generation may make contactless mobile payment desirable for some in that demographic, the vast majority of the population will stick to what they know.”

Bader warns: “Working in the payment industry you sometimes forget that there are still people uncomfortable with mobile technology, or even paying on their computers, but the reality is that this is the case – so Apple Pay is a far stretch for this demographic. Cash is by far and away the most inclusive payment method (used internationally and across all sectors of society) and therefore will remain safely unchallenged as the most successful payment method.”

But not everyone is so sure. “From today, the proof will be in whether NFC will become the long-term de facto standard for payments,” says Andrew Gilboy, VP EMEA at Demandware IRDX VDMW]. “Any time there is change at the cash wrap process, or with the technology, education is required to ensure efficient checkout and reduce disruption.”

He concludes: “Once again, Apple is pulling an industry forward. The buzz alone will force retailers - and consumers - to take notice. I’m not willing to bet against them and the mousetrap they are building, but Apple Pay today is only a fraction of the potential for the future, as time-starved consumers increasingly rely on their smart devices for researching, browsing and purchasing.”
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