Apple wants Pay where credit is due
S.F. weekend event tries to get people to sample service
Thirty-four retailers in Hayes Valley and the Marina district are offering rewards or discounts for customers who are willing to use their iPhone to pay for their purchases instead of cash or a plastic card.
The effort is part of a three-day campaign through Sunday in the San Francisco neighborhoods to get shoppers to use Apple Pay, an option that allows iPhone users to add credit or debit card accounts onto their phones and then wave the phones near a payment terminal to buy items.
When Apple Pay was introduced in 2014, Apple CEO Tim Cook said it would “change the way all of us buy things.” Some analysts breathlessly predicted the technology would render the wallet obsolete. Others more soberly saw an opening for Apple in the awkward introduction of chip cards, which caused long lines at retailers as banks urged customers to switch from swiping cards to dipping them in readers.
In fact, the wallet is still very much with us. By the end of this year, Apple Pay will be available at half of U.S. store locations, and it has a healthy share of smartphoneenabled payments, but most people still prefer to pay with those plastic cards — by far. A September survey by Square, the San Francisco payments processor, found that less than one-quarter of people had used any form of payments with near field communications, the technology behind Apple Pay and Google’s Android Pay.
Some of the retailers involved in the campaign received financial incentives or other support from Apple and Square, which makes a compact payment terminal that
“In a perfect world, I wouldn’t have to carry a wallet.” San Francisco resident Alex Hunter, adding that many businesses don’t accept Apple Pay
accepts Apple Pay as well as chip cards.
Apple understands that getting Apple Pay to grow requires that it “show a commitment” to merchants, said Jordan McKee, a principal analyst with 451 Research, and offer more than just payments. “It’s about rewards, loyalty.”
Brett Lamb, who owns Fleet Feet Sports San Francisco with his wife, said he hopes this weekend’s campaign will bring in new customers. His Chestnut Street store is offering items like hats, bags and gift cards with certain purchases.
“It seemed like a good opportunity to create a little buzz,” Lamb said.
Already, several of his customers use Apple Pay to buy $120 running shoes or small items like a $2 energy bar. This weekend, Apple offered Lamb $1,000 to help cover the costs of the campaign, and he’s spending around $1,000 on it as well.
It’s not uncommon for MasterCard, Visa and banks that issue credit cards to pay merchants for promotions. Google and PayPal have also spent money to encourage use of their payments products. But Apple is just beginning to venture into this field of marketing. Apple backed a similar event in Portland last year and hopes to expand it to other U.S. cities over time.
“Apple Pay merchants have been excited to participate as this kind of initiative helps increase foot traffic,” said Jennifer Bailey, vice president of Apple Pay, in an email.
Apple Pay, which began in the U.S., is available in 16 countries, including China, Russia and Spain. The company says tens of millions of customers use it. In exchange for supplying information to banks to deter fraud, Apple gets a sliver of every transaction, analysts said. McKee estimates 10 to 15 cents on a $10 credit card transaction, for example. Apple acknowledges that it receives some revenue from Apple Pay, including it in a fast-growing services category in its financial reports, but has not revealed how much it makes per purchase or in total.
Apple has expanded the ways people can use Apple Pay — in apps like Lyft and Grubhub, for example, for online purchases and on transit systems. This fall, Apple Pay users will be able to send money to other people, catching up with person-to-person payment services offered by PayPal, Google, Facebook and major banks.
But the adoption of digital wallets has been slower than predicted, McKee said. Even though many analysts believe Apple Pay is more secure, some people don’t understand how the technology works and are reluctant to use it.
Apple Pay also requires new payment terminals. Some retailers have not switched yet, which is why Alex Hunter, 36, still brings his wallet around with him.
Hunter, an owner of a San Francisco communications and marketing firm, says he likes Apple Pay, but there are still shops and a restaurant he frequents in his inner Richmond neighborhood that don’t accept it.
“In a perfect world, I wouldn’t have to carry a wallet,” he said.
Other customers have had to deal with businesses that are still trying to figure out Apple Pay. Briana Rognlin, director of retail operations with Ritual Coffee Roasters, said her business had problems with payment terminals when it started offering the service.
Now those kinks have been worked out. As part of this weekend’s campaign, Ritual will offer a 20 percent discount to customers who use Apple Pay. About 7 percent of the transactions at its Hayes Valley location in May were done through Apple Pay, Rognlin said. Ritual said Apple offered it as much as $2,000 to fund the discounts.
“Some customers just expect it as a default and only have their phone,” Rognlin said.
Thad Peterson, a senior analyst with Aite Group, said he doesn’t think any digital wallet will replace the credit card in his lifetime.
“It’s not that much more convenient to use your phone for something as it is to pull your card out of your wallet,” Peterson said. “There isn’t a lot of value there.”
But McKee said the San Francisco campaign could encourage more customers to pull out their phone for habitual purchases like a morning coffee.
The more they do that, “the more likely they are to form muscle memory,” McKee said.