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Apple Pay cashes in on security campaign as PayPal sags: report

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April 22, 2015

Apple Pay.

Apple Pay.

Apple Pay has grabbed the competitive edge away from online payments pioneer PayPal just six months after the former’s launch, pointing to improved consumer understanding of mobile device security features and Apple’s success in communicating these improvements to the market, according to a 451 Research survey.

Forty-five percent of respondents – up 5 points since December – said they planned to use Apple Pay, while 28 percent preferred PayPal, a four point drop, according to the survey of consumer mobile payment trends conducted in March by 451 Research’s ChangeWave service. The results suggest that PayPal, one of the world’s largest Internet payment companies, has been hit hard by the launch of Apple Pay and Apple’s ability to command a halo effect around nearly every product it launches.

“The improvements in security perceptions we have seen to date is less a result of actual advances in security technology – for example, tokenization, – and more a result of an improved consumer understanding of mobile device security features, which Apple and its issuing partners have done an excellent job of communicating to the market,” said Jordan McKee, senior analyst for mobile marketing and commerce strategies with 451 Research, New York.

“It’s no coincidence that Apple kept security and privacy at the heart of value proposition and messaging for Apple Pay.”

Consumer satisfaction
The survey of 4,168 respondents primarily based in North America looked at planned use of mobile payment applications and the issue of security.

Looking at satisfaction among consumers who are already using mobile payment apps, 66 percent of those who have used Apple Pay said they were very satisfied with the service. PayPal (45 percent) was in second place, followed by Google Wallet (33 percent).

ebay-paypal-other-420

PayPal’s tap-to-pay features are attractive for many online retailers.

The results showed a slow, yet steady, improvement in the perception of security over the past year.

One in four respondents (24 percent) believed mobile payments were more secure than traditional credit cards (6 percent significantly more; 18 percent somewhat more), while 27 percent thought they were less secure (16 percent somewhat less; 11 percent significantly less). The data represents a net 3-point improvement compared with December and a major 26-point improvement since a year ago.

In other key findings, respondents interested in buying an Apple Watch were twice as likely (54 percent) as all other smartphone owners to say they would use mobile payment apps (29 percent very likely and 25 percent somewhat likely).

Secure storage of financial account information (84 percent) was the most important feature in a mobile payment app according to likely users, followed by widespread acceptance among merchants (70 percent).

Eight percent of respondents said they were very or somewhat likely to use Samsung Pay in the future. The number jumped to 25 percent among Samsung smartphone owners, and surged to 46 percent among those planning to buy a Samsung smartphone in the next 90 days.

The results cap off a wave of strategic moves across the mobile payments ecosystem started by Apple Pay’s launch in October. On the heels of Apple’s entrance, Google and PayPal have made acquisitions, while players such as Facebook and Samsung have rolled out payment products to remain competitive.

The pace of activity is expected to accelerate as vendors look to capitalize on the growing contactless payments infrastructure and secure a foothold in the rapidly evolving sector.

“Given the array of security-centric features inherent to mobile devices – such as PIN protection and the ability to remotely lock or wipe a device – compared with the virtually nonexistent security features of physical magstripe payment cards, consumer concerns in regards to mobile payments security are relatively unsubstantiated,” Mr. McKee said. “However, as with any new technology, this is to be expected.

“These concerns are largely a matter of perception and will require enhanced messaging around user protection, in addition to trust-building exercises to drive positive change,” he said. “Simple messaging tactics such as explaining that mobile wallets offer ‘All the security protocols of your credit card, in addition to mobile-centric features such as biometrics and remote device wiping layered on top,’ will go a long way in alleviating misconceptions.”

While Apple Pay benefits from being a central component of the onboarding process of a new iPhone 6 or 6 Plus, PayPal has more hurdles to overcome to gain users without an operating system.

“PayPal’s decision to eschew NFC is now looking questionable as the contactless PoS infrastructure continues to expand as a result of the US EMV liability shift,” Mr. McKee said. “PayPal’s approach to in-store payments remains fragmented, with multiple enabling technologies being leveraged, resulting in an inconsistent user experience.”

PayPal, launched in in 1999, lets users use online money transfers as an alternative to traditional paper methods such as checks and money orders, and performs payment processing for online vendors, charging a fee of 1.5 percent to 3 percent per transaction, below the 7 percent that credit card companies would charge for online merchant accounts. As of last year, PayPal operated in 203 markets and had 152 million active, registered accounts.

Strong potential
Despite PayPal’s lack of traction in-store, the vendor still has strong potential.

paydiant 400

Paydiant’s mobile wallet system.

“The importance of the Paydiant acquisition cannot be understated,” Mr. McKee said. “It will play a major role in building out PayPal’s merchant value proposition. More so, PayPal is pursuing a somewhat dissimilar strategy to Apple, looking to embed itself into a variety of applications as it has done already with Burger King.

“Post-eBay spinoff, expect a more nimble and opportunistic PayPal that is laser focused on mobile.”

Final Take
Michael Barris is staff reporter on Mobile Commerce Daily, New York

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