Feb. 12, 2015

By Patrick O'Boyle, partner, MSP Consulting

Since its introduction in October 2014, Apple Pay has been a popular topic in the payment industry and all over the news. According to Apple CEO Tim Cook, more than one million people had registered their credit cards with the service in the first three days. However, a recent report from InfoScout indicates that only 9 percent of iPhone 6 users have actually tried Apple Pay and only 5 percent of the eligible transactions on Black Friday were from Apple Pay users. Balancing between the benefits of accepting Apple Pay versus the costs of new or upgraded point of sale equipment are key considerations when deciding whether accepting Apple Pay is a good move for your business.

What is Apple Pay?

Apple Pay is a “digital wallet service” that allows iPhone users to pay for goods and services, using an iPhone 6, iPad Air 2 and iPad mini 3 (and soon an Apple Watch) via Near Field Communication (NFC). NFC is a form of short-range wireless communication that allows the cardholder to process a transaction at a merchant location by holding their mobile device near the NFC capable terminal. NFC technology is used by most digital wallet solutions.

According to an article on Investopedia, Apple Pay vs Google Wallet: How They Work, when a customer registers with the service, Apple contacts the issuing bank directly and receives back a unique Device Account Number (DAN) that is stored on the phone’s secure chip. This DAN solution is called tokenization. The DAN serves as a proxy for the customer’s actual credit card number and is used in the sale transaction making Apple Pay potentially more secure than a traditional credit card for consumers. Because Apple Pay acts only as a payment medium, they do not track consumer purchases on their systems, potentially providing more privacy than other digital wallets.

Apple’s DAN approach allows for added security and peace of mind for consumers, but it also means that Apple must sign-up issuing banks to work with their system, whereas Google Wallet is designed to work with every issuing bank and credit card provider. This may prove to be a hurdle for Apple.

What are the advantages and disadvantages for businesses?

Apple Pay simply offers another way for retailers to capture a sale. The novelty of the technology and simple ease of use could encourage customers to use Apple Pay. For customers whose phones are perma-glued to their hands, Apple Pay is an obvious next step. According to a recent New York Times article, Dozens More Companies Sign Up for Apple Pay, many major retailers like Disney, McDonalds and Uber — as well as credit card issuers that make up 90 percent of all credit purchases — have embraced Apple Pay as an additional way to accept payment and many more are expected to join in the coming years. This could make Apple Pay a preferred payment method for consumers in coming years.

For businesses, however, the immediate incentives for adding Apple Pay are small. According to an article on Forbes, Why You’re Not Using Apple Pay, the credit card fees are still incurred the same as with traditional credit cards. Furthermore, businesses need to have point of sale equipment that supports NFC. This is an added cost that many smaller businesses are finding it hard to justify to simply support Apple Pay. However with smart card technology (EMV) coming in 2015, many retailers need to upgrade their point of sale equipment and this will drive the migration to NFC supported equipment, potentially paving the way for Apple Pay and other digital wallets.

Even though Apple and credit card companies could see significant benefits with Apple Pay, they are offering surprisingly little incentive to retailers. In fact, 31 percent of customers on Black Friday claimed that they didn’t even know if a particular store accepted Apple Pay. Apple Pay is designed to seamlessly speed up the checkout process for both retailers and customers, but because of its newness in the market, most retailers are not yet equipped to deliver on this promise.

Is Apple Pay right for your business?

Uptake of Apple Pay across all retailers will be slow so there’s no immediate need to buy Apple Pay compatible terminals right now. However as businesses consider replacing older point of sale equipment, be sure the new equipment is NFC-ready (contactless-ready). NFC-ready systems will enable you to accept a broader range of payments from customers, including Apple Pay, and other digital wallets. Be cautious to not overpay for NFC-ready solutions. Most new terminals are equipped with NFC capability and the costs for these terminals are in the range of about $300. As for point of sale card readers that are EMV/smart card ready, as well as support NFC and Apple Pay, the costs can vary greatly depending on the point of sale system being used at the business.

The success of Apple Pay will depend on the willingness of issuing banks to partner with Apple, and even more so the consumer’s willingness to adopt the payment technology. If more retailers and customers start accepting Apple Pay as a preferred payment method, the need to integrate Apple Pay into your current point of sale systems may become more important. However there seems to be little urgency to upgrade point of sale equipment immediately to support Apple Pay.  


Topics: Mobile Payments, Payments, PCI Compliance, POS, Technology


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