The reports of Apple’s failure or struggles with Apple Pay are interesting to dissect when you consider the global forces at play against this mobile payment Innovation from the US Tech giant.
A recent report by Reuters indicated that “the smartphone giant has made only a small dent in the global payments market” which were attributed to “technical challenges, low consumer take-up and resistance from banks”.
Perhaps the most important thing to consider here is the lack of local usage numbers across the different countries where Apple Pay is available – because Apple don’t release them, plus the vastly different markets in which Apple is operating starting with the United States.
The State of the United States
As I’ve written before, the United States could well be the most backward “advanced economy” in the world when it comes to payment methods. We’re talking about a country where cheques are still a “thing”, and to pay with a credit card they’re still swiping cards, and you’re asked to use a stylus to sign a screen.
It’s in this context that the announcement of Apple Pay was in fact a groundbreaking technology for most Americans. The jump from cash or swipe card payments to tapping a mobile phone or watch is a big one, and there’s little wonder it has been adopted by so many US banks in the short time it has been available.
However, fast forward to the Australian market and it’s a vastly different scene. Australia has the highest take-up rate for contactless payments per capita than anywhere else in the world. We’ve had tap-and-go compatible payment terminals in supermarkets, service stations, convenience stores and small family restaurants for a long time now. Our banks have been issuing contactless enabled debit and credit cards for some time.
Jennifer Bailey – Vice President, Internet Services, Apple Pay at Apple told EFTM at the launch of ANZ’s with Apple Pay “We recognise Australia as a global leader in contactless payments, with incredible acceptance, we are excited that our Apple Pay customers will be able to use it nearly everywhere they shop”.
Because we’re so advanced in contactless payments, Apple Pay is actually a more difficult sell for consumers in Australia. More importantly, the Banks are already satisfied with the reduced fraud risk that comes with the new payment systems (and getting rid of swipe cards) and with their cut of the transactions.
From a big-bank perspective the idea of involving another company (Apple) in the whole transaction process seems to be the issue. In the US the incentive for the banks to adopt Apple Pay was to increase card transactions and benefit from the transaction fees. In Australia that incentive just doesn’t exist.
For Aussie consumers it’s a different issue. They either don’t have the choice to try to use Apple Pay because their banks have been stubborn, or they don’t see the overwhelming benefit of a system that “simply” replaces a card with a phone.
And the education piece for consumers hasn’t even reached the point of discussing security. Imagine again the USA, where signatures and showing ID is still the basic payment mechanism. In Australia we’ve rushed toward contactless and the risk is a card being stolen and payments made without any real authorisation.
Something rarely discussed is the fact that Apple Pay adds a whole new level of security for consumers. The credit card details are not stored on your devices, and your payment details are not shared with Apple. Instead, your card is merely a “token” on the device (Watch or iPhone), and each and every payment has biometric security behind it.
To pay with your phone you need a fingerprint. To pay with your watch you must have unlocked the watch with a secure pin-code and it must remain on your wrist. For consumers who take their payment security seriously this is a huge win.
Industry analyst Foad Fadaghi from Telsyte says “the challenge is, mobile payments are driven by experiential outcomes – you’ve got to try it to see the benefit, and its at its best in wearables” adding “it’s early days for wearables in Australia – and until then people aren’t seeing the phone vs card as an obvious advantage” – put simply, “wearables supercharge the mobile payments experience”
This is where Apple holds a distinct advantage over its competitors. Apple watch and iPhone are inextricably linked. When Android Pay becomes available for the very latest Android phones, there will be little or no wearable product to support it which will mean the question is simply card or phone, not card vs wearable payment.
Foad’s assertion is confirmed by a survey by Wristly of Apple Watch owners showing that 80% of Apple Watch owners are using Apple Pay.
In addition to that, there’s a next level to mobile payments which hasn’t yet been seen in Australia or the US. Jennifer Bailey says “in places like the UK because of the more advanced contactless infrastructure, Apple Pay is supported in the Transport for London, for use on the tube and buses.”
Combine ubiquitous payments with wearable devices and the vision for the future isn’t looking too bad. Telsyte’s Australian Smartphone and Wearables Devices Market Study 2016 indicates smartwatch users are 5 times more likely than the general population to be comfortable to pay with their smartwatch with predictions that by 2020 around a third of the population could be wearing a smart wearable device on their wrists.
The Speed Bump
All that aside, the fact that three of our biggest banks, and in reality all but one bank in the whole country are yet to offer Apple Pay support is a pretty big speed hump in the road to Apple Pay adoption by consumers.
This “resistance from banks” is not technical, it’s financial. The banks simply don’t want to add this feature for consumers for fear of losing a micro-percentage of revenue from transaction.
If they were doing what customers were calling for, Apple Pay would have been supported by all the banks sooner. The ANZ CEO has stated that the social media demand for Apple Pay was a factor in their decision to launch Apple Pay.
ANZ immediately saw customer acquisitions as a result of their launch of Apple Pay and EFTM understands this has continued with new account openings for the bank, meanwhile Apple Pay engagement and satisfaction rates are off the charts, with third-party surveys showing satisfaction as high as 98%.
And while Reuters pointed to an instance of a customer hitting technical snags, ANZ General Manager Deposits and Payments, Katherine Bray told EFTM “ANZ customers are not finding issues with Apple Pay being widely accepted. We know this because the average number of transactions per user and the average spend per card continues to rise as confidence increases through smooth experience and new payment habits forms – our data makes that very clear.”
The long game
In the end, what stock market analysts and observers need to realise is that this is long game. Wearables are very new, cashless societies are still a long long way off – but when they are a standard thing, we’ll look back on Apple as an early leader in the field.