Why Apple’s big play on Pay hasn’t taken off.
Only a quarter of top 100 chains accept it
CHICAGO • In a January earnings call with investors, Apple Inc. chief executive Tim Cook made a confident prediction: “2015 will be the year of Apple Pay,” he said.
Since then, the company has aggressively courted retailers — and claimed significant success. “We’ve spoken to all of the top 100 merchants in the U.S., and about half will accept Apple Pay this year, with many more the following year,” a company spokesperson recently said.
But interviews with analysts, merchants and others suggest that Apple’s forecast may be too optimistic and that many retailers remain skeptical about the payment system.
The service is one of Apple’s biggest bets, a chance to tie customers more tightly to its phones and its new smart watch, as well as to take a tiny bite from every retail transaction.
While some of the country’s top 100 retailers said when surveyed that they use and like the mobile payment system, fewer than a quarter of the retailers said they currently accept Apple Pay, and nearly two-thirds of the chains said categorically they would not be accepting it this year.
The top reasons retailers cited for not accepting Apple Pay were insufficient customer demand, a lack of access to data generated in Apple Pay transactions and the cost of technology to facilitate the payments. Some merchants said they were holding out because they plan to participate in a new mobile payment system to be launched by a coalition of retailers later this year.
Reliable statistics on mobile wallet payments are difficult to obtain. An ITG Investment Research study conducted in November, soon after Apple Pay was launched, found that the service accounted for one per cent of digital payment dollars, while Google Wallet accounted for 4 per cent.
Since then, analysts agree, Apple Pay’s market share has grown dramatically. “In the last six months or so there has been more acceptance of Apple Pay,” said Steve Weinstein, senior Internet analyst for ITG.
It is clear Apple Pay has made considerable progress in signing up vendors, with more than 700,000 sites as of March 9, the last time Apple updated its numbers, including self-service terminals such as vending machines, laundromats and parking meters.
Interviews with retailers suggest that the company has relied on aggressive marketing to recruit participants. “They have been pushing hard and it’s been that way for months,” said the representative of one large retailer that has no plans to accept Apple Pay.
For many retailers and consumers, Apple has yet to answer the question “What is in it for us if we use Apple Pay?” said Alberto Jimenez, program director for mobile payments at IBM, which provides technology to mobile wallet makers and retailers.
The program doesn’t offer loyalty rewards to customers, as companies such as Starbucks do with their mobile applications, nor does it provide customer information to retailers about Apple Pay users.
For 28 of the retailers surveyed, lack of access to data about customers and their buying habits is a key reason they don’t accept Apple Pay. “One of the biggest concerns is data control,” said Mario De Armas, senior director, international payments, at the world’s largest retailer, WalMart Stores Inc.
Another reason cited for not accepting Apple Pay by retailers surveyed was the cost of terminals and computer upgrades required to accept a mobile wallet.
“What is the return on investment?” asked Maureen Elworthy, director of treasury at Ahold USA, which runs supermarket chains like Stop&Shop, during a panel on Apple Pay at an industry conference. “The (answer) is negative,” she said.
She said Ahold USA does not plan to accept any wallets because they see it as an
They have been pushing hard … for months
investment cost without immediate returns.
The cost to merchants of accepting a mobile wallet is highly variable depending on what technology they already have in place.
Apple declined to comment on the cost to retailers of accepting Apple Pay, but referred to Ian Drysdale, executive vice-president at payment processor Elavon, which works with Apple.
Drysdale downplayed the cost issue. “As long as the retailer is upgrading to the new payment terminals, which are enabled with contactless payment technology, there is very little additional cost to accept Apple Pay,” he said.
Ultimately the success of Apple Pay may rest with iPhone users like Scott Braeckel, an iPhone 6 owner who has used Apple Pay — but only once.
Braeckel said he liked the Apple Pay experience, but he generally pays with a credit card, even at places like McDonald’s, which accepts the mobile wallet.
“It was an interesting curiosity but hasn’t moved into daily use for me because, frankly, I don’t really shop at places it’s taken,” Braeckel said. “The places I mostly shop, which are my grocery store and pharmacy, don’t accept it.”