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Apple Pay Adoption Continues; Looming Concerns?

Apple recently announced record-breaking earnings because of its 2014 fiscal year. One of the amounts for iPhones and iPads, the company also offered thoughts about the development of Apple Pay, the mobile payment and electronic wallet services.

I addressed Apple Pay last October, in “Explaining Apple Pay: Pros and Cons.” In this post, I will provide an upgrade on Apply Pay, to track its progress.

Adoption Continues to Grow

Apple Pay adoption has increased significantly since it was launched in October. A report by BI Intelligence indicates that payments made through Apple Pay accounted for 0.1 percent to 1.6 percent of transactions at five leading retailers in November, the month after the launch. Given that Apple Pay only works on the new iPhones, these amounts are remarkable.

To further drive growth, Apple announced a partnership with USA Technologies (a wireless payment supplier for self retail places ) to begin accepting Apple Pay at approximately 200,000 self-serve terminals, such as coffee machines, vending machines, kiosks, car washes, transit tickets, and taxi terminals. Self-service checkout terminals could be a perfect use for Apply Pay, as clients can simply wave their phones before the checkout area versus handing their credit card to someone for swiping or inserting coins and cash.

During the earnings call, Apple CEO Tim Cook said that 2015 was the”Year of Apple Pay.” He said that at Panera Bread, the restaurant chain, 80 percent of mobile payment transactions are made via Apple Pay — demonstrating growing adoption. He also said that Whole Foods Market, the grocery retailer, has seen mobile payments increase by over 400 percent since Apple Pay was released in its own shops. Cook shared that Apple Pay now counts for two of every three dollars spent via contactless payments on the U.S.’s three biggest card networks — Visa, MasterCard, and American Express. That is exceptional growth in a really short time period.

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Another element that will probably drive Apple Pay’s expansion is the launching in major markets outside the U.S. Apple intends to launch the service in Canada and the U.K. over the next few months. And based on iPhone sales amounts from 2014, China is a massive market for Apple and it’s very likely the Apply Pay will be launched there in the Asian marketplace.

Apple CEO Tim Cook called 2015 the “Year of Apple Pay.”

Apple Pay Concerns

All this is great news for Apple Pay. However there are looming issues that could reduce Apple Pay’s growth.

  • Competing for market share. Apple Pay is showing great momentum but it’s still competing for market share with other mobile wallet suppliers, like Softcard and Google Wallet. Google Wallet has supported NFC payments for the past couple of years and the launch of Apple Pay has revived interest in Google Wallet, as retailers wish a mobile payment option for Android users.

Furthermore, a group of large retailers which includes Walmart, CVS, Rite Aid, and Sears is launching a new service named CurrentC that could develop into a substantial threat to Apple Pay as this group of merchants records more than a trillion dollars in annual sales. CurrentC will start later this year.

  • Gaining adoption beyond the U.S. NFC payment technology and mobile wallets are in use for the past couple of years in Europe and Asia. Since Apple Pay is established there, it’ll be competing for adoption with existing vendors who’ve already built a thriving ecosystem of customers and retailers. Furthermore, many countries are using the so-called chip-and-pin charge cards (also referred to as EMV cards) which have significantly reduced credit card fraud. This could impact adoption when the clients are already feeling secure with their existing payment method.
  • Closed system. Apple Pay functions only on Apple devices which limits its growth. For Apple Pay to grow more aggressively, it must make this an open system so that a user can use Apple Pay on any mobile device. This may also attract more retailers to register for Apple Pay.
  • Telephone battery. The battery life of this iPhone 6 and 6 Plus has improved over the previous versions. But the battery can drain out over a day with app use. This presumably has to be improved before a customer can feel comfortable in leaving their money and credit cards at home and only relying on iPhone mobile wallet for all retail transactions.
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