The service, which will work both with iPhones and Apple's new Watch, is
backed by a host of big retailers, along with most major banks and
credit card issuers, including Visa, MasterCard and American Express.
So-called
contactless payment isn't new. Starbucks, McDonald's, PayPal, Google
and Square offer their own services, but only a small portion of
customers use them. Some experts believe Apple Pay - with its presence
on millions of iPhones and its advanced security features - could be the
service that leads to widespread adoption of the digital wallet.
Citi
Investment Research analyst Mark May believes the sum total of mobile
payments could grow from $1 billion in 2013 to $58.4 billion by 2017.
Payment
digitisation paints an enticing vision of shopping's future: simply tap
your device against a checkout screen and walk away with your new
shoes.
But despite the flashy Apple Pay launch, Apple faces
challenges making that vision a reality. The company and other digital
wallet providers must convince shoppers that the transactions are safe
-especially in the wake of recent high-profile data breaches at Home
Depot and Target. Meanwhile, the company must also make a case to
retailers that it's worth it for them to invest in new point-of-sale
systems.
Many US merchants still aren't sold on the idea. About
220,000 stores are set up to accept Apple Pay. That's only 5.5 per cent
of the 3.6 million retail locations in the US, according to the National
Retail Federation. The biggest US retailers, including Wal-Mart and
Best Buy, are not participating in Apple Pay.
The main reason is
cost. Each point-of-sale device, which uses something called near-field
communication technology, costs hundreds of dollars, plus hours of
worker training. And there's been little customer demand for the
systems.
That may change now that Apple has entered the arena, Gartner analyst Avivah Litan says.
"There's
no doubt young people want to use phones to make payments, but they
have to have a place to pay," Ms Litan says. She predicts bigger
retailers will see how well Apple partners like McDonald's do before
they move into mobile payments.
"If it goes well at other retailers, Wal-Mart and other companies may break down and start taking it."
In
countries such as Canada and the UK, contactless point-of-sale systems
are widespread, and as a result, such payments are far more common. In
Canada, for instance, about 20 per cent of transactions at registers
processed by MasterCard are completed by contactless payment, according
to MasterCard.
"What you learn from that is when consumers start
'tapping' two or three times, they never go back to their old behavior
at that merchant. ... It's just a much better experience," says Ed
McLaughlin, chief emerging payments officer at MasterCard.
One of
the strengths of Apple Pay is its security. Its system uses the
company's Touch ID fingerprint technology, a secure chip, and payments
that require a one-time security code.
That kind of security -
similar to the chip-and-pin credit card system used in Europe - would
prevent the type of breaches that happened at Target and Home Depot. And
it could be a compelling reason for retailers to adopt Apple Pay, Ms
Litan says.
"If you get enough people using the service, it would
cut down on retailers' security costs, and that's why over time it may
really take off," she says.
Still, not everyone is convinced that
swiping a credit or debit card is that much of an inconvenience in the
first place. Bill Ready, head of next generation commerce at PayPal,
points out that near-field communication has been around for 10 years
without catching on.
His vision of the mobile payment future is
more akin to an "e-commerce style transaction happening in the physical
world", he says, citing the example of car-sharing service Uber, which
works with PayPal to processes riders' payments by way of a mobile phone
app.
"Uber addressed a real pain point, in that hailing a taxi
and payment for a taxi is cumbersome," he says. "We're focused on those
types of things more than killing the card swipe."
Even amid the differing visions, most experts agree that the march toward the digitization of payment will continue.
"Someone
is going to figure out how to make mobile payments easy and cheap and
then we're talking a real shift in consumer behavior," Gartner's Ms
Litan says.
