An in-depth look at Apple Pay, and what it means for retailers

| by Will Hernandez
An in-depth look at Apple Pay, and what it means for retailers

To say that Tuesday's announcements at the live Apple event will have an impact on retail would be a massive understatement.

In between its announcements about two new (and larger) iPhones and a smartwatch, Apple spent considerable time hyping its new mobile wallet system that will center on NFC, Passbook and Touch ID. Apple brought heavyweights with it too and revealed a who’s who list of banks, payments companies and retailers that will support Apple Pay immediately and down the road when the system officially launches next month.

There were, however, a few omissions from Tuesday's announcement, particularly one must-have feature many industry observers believe is an absolute must for mobile payments to enjoy widespread use among consumers.

But let's get the basics out of the way first.

Apple introduced three new devices: the iPhone 6, the iPhone 6 Plus and Apple Watch. All three support NFC. Both iPhones hit the market Sept. 19. Apple Watch will not be available until early 2015.

Apple Pay, the company's mobile-payments system, is both an in-store and in-app/online play. Not only will users be able to pay for a burger at McDonald's using their NFC-enabled device at a contactless point-of-sale terminal, but they can also pay for an Uber ride within the car service's app. Both methods use Touch ID to confirm the payment. The iPhone's NFC antenna is located across the top of the device.

American Express, MasterCard and Visa are all partners. Noticeably absent from that group is Discover, which has never been keen to work with the other networks. At least for now, Discover is on the outside looking in.

PayPal is also absent as it continues its struggle to make the transition to the physical point of sale. Apple Pay leapfrogged PayPal in that respect in about a 30-minute period Tuesday.

Apple also has the support of some major financial institutions. Bank of America and Chase were featured in two demos Apple showed during the presentation. Capital One Bank and Wells Fargo also are on board immediately while Barclaycard, Navy Federal Credit Union, PNC Bank, USAA and U.S. Bank will follow later.

Users will store their cards in Passbook, which will serve as a hub for Apple Pay.

The FI support is significant for a couple of reasons.

"An impressive list of issuer partners gives [Apple] them strong transaction coverage," said Ed Busby, the former chief commerce officer at Isis (now Softcard). "There's also support for debit cards, which are popular not only for users, but also for merchants who are seeking to keep their interchange rates low."

Speaking of interchange, it is widely believed Apple will receive a fee from banks each time a consumer uses Apple Pay. Apple reportedly negotiated separate deals with the banks, but no one is sure what the tech giant will receive for each transaction.

Payments processors such as First Data (which is involved in the tokenization process) and Stripe also announced their support of Apple Pay. Expect more banks and payments companies to make more announcements, especially now that third parties have access to the Touch ID API.

Of course, there is retailer support as well.

Initial merchant partners include Babies R Us, Bloomingdale's, Disney, Duane Reade, Macy's, McDonald's, Nike, Petco, Staples, Subway, Toys R Us, Unleashed, Walgreens and Whole Foods. In all, Apple Pay will be a payment option at 220,000 store locations in the U.S.

TechCrunch showed an Apple Pay demo that revealed Panera's mobile order app supported the system as well.

Busby believes the initial merchant support is underwhelming, especially when you consider the retailers involved in the Merchant Customer Exchange.

"Apple's partners are composed largely of existing contactless retailers, most of which are in low volume transaction businesses," he said. "Moreover, there is no sign they have broken the back of MCX, which is where many of these high volume retailers lie. There needs to be a better value proposition to bring these merchants into the NFC fold."

​Apple did not reveal any partnerships with banks or retailers overseas, but that will happen soon enough. 


Apple emphasized security during the announcement as it seeks to reassure consumers their information is safe after the recent iCloud mess that saw a hacker gain access to celebrity accounts and then proceeded to sell their nude photos on Reddit for bitcoin.

Apple integrated several protocols intended to ease security concerns once consumers understand them. The first one is simple: the Apple Pay transaction will involve Touch ID. When Apple first added fingerprint authentication to the iPhone 5s, many experts believed it was a precursor to a mobile-payments system.

In addition to Touch ID verification, Apple will use tokenization to imitate card credentials. Each Apple Pay account will receive a randomly generated number from the cloud, which is places in the device's secure element.

Apple claims it will not know what an Apple Pay user bought, where they bought it, or how much it paid for goods and services at any given merchant. That kind of reassurance probably needed to be said to quell Big Brother fears, but Busby believes Apple is missing out on important user-behavior data.


Apple Pay's success will depend on consumers and merchants. That is a given despite what Cook framed as the end of plastic during his presentation. We are far from that environment. Rewards could help, but that was a key feature missing from Apple's announcement.

For years, the payments industry has pounded home the argument that mobile payments will succeed if there are robust incentives to use wallets and retailer apps. Right now, there is no consumer incentive to use Apple Pay other than that it looks cool.

"There needs to be a motivation for early users to adopt mobile payments beyond novelty, particularly when contactless remains subscale," Busby said. "Small incentives, such as free soy milk at Starbucks, can provide big returns in habituating early users. Given the value of the Apple early adopter, it should have been relatively easy to obtain offers from merchants looking to be the first place users go to trial the technology."

Busby also noted the lack of other shopping experiences from Apple such as location-based services from iBeacon. Perhaps this will come later, but he believes Apple missed a huge opportunity not having these features from the start.

The overwhelming response from industry analysts and executives is that Apple Pay rejuvenates a technology (NFC) many believed was dead and needed a huge shot in the arm. And when you combine an NFC-enabled iPhone (and Apple Watch) with the EMV contactless terminal transition now happening at the brick-and-mortar point of sale, widespread adoption has a real chance to happen.

Apple, however, needs some help along the way. Consumers will need to feel safe and comfortable using Apple Pay and receive incentives for doing so. Cards are not broken, just a little boring. Apple and its partners can change this and make mobile payments exciting with coupons, discounts, points and other incentives.

Photo courtesy of Karlis Dambrans

Topics: Omnichannel / Multichannel, Online Retailing, Payments, PCI Compliance, POS, Technology

Will Hernandez
Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of, he spent two years as the content manager for, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago. View Will Hernandez's profile on LinkedIn

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