Apple Pay isn’t doomed yet. An Australian perspective on US mobile payments

Over the last six months, the news for Apple Pay has been pretty mixed.  While the payments system has grown its footprint internationally and recorded some successes, US experience has been far from stellar.

The key trend emerging is that while US consumers are happy to trial Apple Pay, ongoing usage is disappointing.  In fact, repeat usage is declining, as reported here, here, and here (there’s lots more) which must be of great concern to Apple.

Why are US consumers failing to utilise Apple Pay in greater numbers?  One answer, according to an article on PYMNTS.com called ‘Apple Pay Meets Its Biggest Foe Yet: Consumer Apathy’, is well… consumer apathy.

I think the real answer is more nuanced than that.

A summary

First let me summarise the key points of the article…

It starts by highlighting some key data emerging from a quarterly survey of Apple Pay adoption:

• more US consumers are trying out Apple Pay than ever (this has now reached 23% based on the survey)
• but ongoing usage is in decline (down 41% from peak survey levels).

That is, many consumers are trying out Apple Pay, but then are not continuing to use it.

The article then goes on to speculate about possible reasons for this:

• swiping a card (through a magnetic swipe POS terminal) isn’t hard:  in fact it’s really convenient; thus there’s perhaps no great ‘consumer pain point’ that needs to be solved by Apple Pay?
• does Apple Pay provide a ‘sufficiently better’ payments experience (than paying by card) to warrant consumer adoption?

In other words, while there might be some UX improvement in a consumer paying with their iPhone (as compared to a card), perhaps this improvement is too modest to warrant the effort?

The article finishes by proposing ways in which Apple might tackle this, including:

• a media blitz to overcome consumer inertia and apathy
• lowering the price of an Apple Watch
• extending Apple Pay to mobile web

The Australian experience with contactless payments

I think the Australian perspective is helpful in this discussion as it highlights a few missing parts of the analysis.

Australian card issuers started issuing EMV cards years ago, and all POS terminals were required to be EMV-compatible by April 2013.

Off the back of this, the major acquiring banks and card schemes launched contactless POS terminals (to facilitate the adoption of payWave and PayPass) and supported this with an extensive advertising campaign.

The result has been a massive shift in consumer payment practice to ‘tap n go’ contactless point of sale payments.

Some of our clients are now experiencing over 40% of their card transaction volumes as contactless, with this number soon to breach 50% and no end in sight.

Success factors

The Australian experience with card-based contactless payments has succeeded because of two features of its payments platform.

1. Ubiquity

NFC-enabled POS terminals are everywhere.  It’s not a question of searching out for one or lucking on one in a random shop.  I mean they are everywhere; it’s almost a novelty when you encounter an old one that forces you to insert your card (how last decade!)  This has allowed consumers to have confidence in the availability of a ubiquitous contactless payments network, and, indeed to come to expect it.

2. Interoperability

Pretty-much all POS terminals accept all contactless cards:  it’s not that I have to search for one that my card will work with; they all just do.  The importance of this can’t be underestimated:  as a consumer I need confidence that when I walk up to merchant counter, my card will work irrespective of the merchant’s acquirer or my card issuer.

Mobile payments

Australian banks are now heavily focused on leveraging the success of this contactless payments platform to move into ‘non-card-based’ contactless payments, ie mobile payments.

In the US, however, participants don’t have the benefit of a ubiquitous (as pointed out in a great article here) and interoperable (as pointed out here) payments platform.

Instead they are trying to introduce market offerings at the consumer end whilst also introducing competing payments platforms.  Is it any wonder that US consumers have reacted with scepticism to the promises of mobile payments advocates?  No media blitz will change that.

Apple Pay and apathy?

Which brings me to the question of Apple Pay.

Firstly, let me say that, from personal experience I can attest to the fact that (contrary to assertions in the PYMNTS article) a contactless payment is vastly superior to one where you are required to insert or swipe a card.

It may not seem like much, but once you become used to the convenience of ‘tap n go’ you begrudge going back.  And the popularity of this practice is fully borne out by the Australian shift to contactless.

Secondly, if things are so much better with a contactless payment card, then I can thus appreciate that my payments experience is likely to be better still when I don’t have to carry around my wallet and can just use my phone.

Thus it’s not that Apple Pay is deficient. It’s that, in the US at least, it would seem that the circumstances for its success are wanting.  

So customer apathy?  No.  I don’t think so.  Instead (as argued here) I think it’s more to do with the difficulties of trying to improve both the demand and the supply sides of the market at the same time.

After all, if I can’t use my phone to pay everywhere, then no amount of in-store UX consumer benefit (eg in terms of payment ease, or perhaps, integrated rewards) will overcome this fundamental adoption impediment.