This is a guest post from Henry Helgeson, the chief executive of payments system software company Merchant Warehouse.
The new iPhones are out. In fact, you might very well be reading this on one. And while you may be excited about the bigger screen, slim profile, fancy camera or even the futuristic Touch ID features, you’re probably not giving much thought to what could turn out to be the coolest feature to come out of this latest iteration: Apple Pay.
Yes, really. Apple Pay launches on Monday and the service stands to reshape the landscape, not just for consumers, but for retailers, restaurants, banks, credit card companies, mobile app developers, and more.
Because Apple Pay brings the “seamlessness” we’ve all been promised from Retail 2.0 to fruition, and it has all the right elements to propel more widespread adoption of wireless payments technology.
Here are the five reasons Apple Pay is likely to change the mobile payments landscape for good &mdash and finally bring it to the mainstream:
1. Apple Has Consumer Mindshare
Arguably the biggest reason that Apple is likely to succeed where many before have failed is sheer consumer marketshare. More than 42 percent of U.S. consumers with smartphones have an iPhone, and those consumers already spend more using their phones than Android users. That has the potential to translate into more purchases made using Apple Pay, as well.
Moreover, there are more than 800 million iTunes accounts, all of which are connected to credit cards, making Apple Pay just a tap away. With that being said, it should be noted, that not all card accounts will work with Apple Pay. For the time being, Apple has only announced relationships with some of the larger banks and issuers. Smaller, regional or local debit cards won’t be applicable with Apple Pay any time soon.
So while many other mobile payment startups have struggled to get a foothold beyond early adopters, Apple is poised to take the win. Consumers not only trust their products, they practically worship them — just witness all the hoopla around the latest Apple announcement. It often takes a company like Apple with significant consumer mindshare to convince consumers (and merchants) to try out a new technology — which is exactly what’s happening now.
2. It Works with Current Technology
One challenge many mobile payments startups have run into is how to make sure their technology is usable at a merchant’s countertop. Apple’s choice of NFC technology to power Apple Pay was smart because it’s already fairly common. Android smartphones have had it for a while, and many point-of-sale (POS) terminals can already support NFC.
Apple also recognizes that now is an ideal moment, from an adoption perspective, to seize the payments opportunity.
That’s because many merchants are in the process of switching over their countertop devices to comply with the looming deadline for the U.S. to finally accept EMV (the dominant credit card technology in the rest of the world).
Other technologies have failed in the past, partially because they required so much adaptation. QR code-based payment technologies required POS developers to build the technology needed for acceptance into older systems. But Apple Pay runs on the credit card system we’re all used to, and the transaction takes place using the same data. This is Apple’s brilliantly simple plan to gain ubiquity for mobile payments.
3. They Recognized the Industry’s Complexity
Apple did the right thing here by recognizing just how complex the payments industry is. Many of the upstart companies (such as Square, LevelUp, etc.) which have tried to seize the opportunity presented by the space don’t realize that legacy systems and powerful stakeholders can make accomplishing what can seem simple on the surface, actually quite challenging.
Instead of trying to completely reinvent the wheel, Apple not only relied on existing technology (in the form of NFC and credit card systems), they also worked with the top banks and card issuers, including Visa, Mastercard, and Bank of America, to ensure that acceptance would not be an issue before going public with the new offering. In fact, they’ve partnered with companies that, together, represent 83 percent of all credit card purchase volume in the U.S.
And knowing Apple, this is just the beginning. They’ll continue to iterate and add more partners over time.
In addition, Apple has negotiated so that retailers will be charged the same rate they normally are when customers pay with a card in-person, rather than the higher “card not present” rate.
From what we know, no other company has been able to strike a deal this favorable for merchants (and themselves). While it may seem minor on the surface, it will go a long way towards convincing retailers to adopt the technology, which will mean more acceptance points and widespread adoption.
4. They Emphasized Security
Beyond these logistical hurdles, Apple was able to solve some pressing security issues that hadn’t yet been effectively addressed in the payments space.
With Apple Pay, security concerns are minimized because credit card information isn’t kept in the phone or given to the merchant. Instead, the iPhone 6 stores a dynamic security code (called a token) that changes after each payment. This security system should dramatically reduce payment fraud and discourage hackers.
Along with the built-in tokenization and the support of major credit card brands, Apple’s Touch ID technology will help ensure secure transactions by making it very difficult to commit fraud. Its bluetooth low energy technology (BLE) also adds another layer of location-based security (along with GPS) by enabling the phone and the merchant’s system to automatically recognize one another and verify that the consumer is present at the location.
With all of these additional parameters in place, it can be argued that Apple Pay may be more secure than using your existing plastic credit card.
5. The Future is Bright
Finally, while Apple Pay launches with a rich set of features and integrations, what’s most exciting is to see where Apple will go with payments in the future. In particular, Apple Pay presents a huge opportunity in the world of loyalty and offers.
At the end of the day, paying with your phone is just a parlor trick. It’s fun for the consumer and gives the merchant an aura of cool, but that will wear off quickly. The lasting value lies in what a phone-based transaction can bring to consumers via personalized service and a tailored experience.
As applications are developed for Apple Pay, there will be more and more opportunities for merchants to insert specific, targeted and even hyperlocal offers and deals that will help bring customers in the door.
It’s too early to predict all of the benefits that the Apple ecosystem will be able to bring to these merchants, but it will be sizable. The developer community should see this as a green field and build innovative solutions that make the payment experience more enjoyable and meaningful for both merchants and consumers.
Henry Helgeson is the CEO of Merchant Warehouse, a leader in payment acceptance solutions and merchant services.