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Are apathetic retailers killing Apple Pay in-store payments?

April 3, 2015

Apple Pay.

Apple Pay.

Checkout problems stemming from insufficient equipment investment and a lack of employee training in Apple Pay have raised questions about the technology’s long-term viability in mobile in-store payments, notwithstanding the buy-in it has received from a growing number of financial institutions, card networks and software companies.

A Phoenix Marketing International study found that while two thirds of iPhone 6 and 6 Plus owners surveyed have signed up for Apple Pay, repeat use has been hurt by long waits for transactions to be processed, cashier unfamiliarity with the technology and incorrect transactions. The problems point to a disconnect between technology companies that would love to see Apple Pay in-store payments take off and retailers who do not see it as essential.

“The primary issue for retailers is that many of them still don’t have the proper marketing infrastructure in place to communicate with their mobile customers,” said Vanessa Horwell, chief strategy officer with ThinkInk, Miami.

“As a result, it’s very difficult for a retailer with a less-than-stellar mobile marketing program to even consider going that last mile toward a mobile-enabled proximity payments environment if they’re not even at the starting line yet.”

Apple, Cupertino, CA, declined to comment.

The lack of merchant support for Apple Pay in-store payments, also called mobile proximity payments (as differentiated from mobile payments for online purchases), is seen as tied to the cost of upgrading point-of-sale (POS) terminals to models that can support near field communication chips.

Apple Pay 400

Retailers’ lack of investment and staff training have hurt use of Apple Pay.

Although United States retailers have to upgrade POS terminals by October to support Europay, MasterCard and Visa credit and debit card chip technology, just one-third had switched by the end of last year, Bloomberg reported.

Retailers’ neglecting to teach employees how to handle Apple Pay in-store payments, and to invest in the equipment to enable seamless transactions raises questions about whether Apple Pay will indeed live up to its creators’ expectations of becoming the engine of in-store mobile payments.

“It comes down to an issue of trust,” said Irv Hendersen, CEO and co-founder of talech, the Palo Alto, CA developer of a tablet-based POS platform. “Our research found that stores that adopt tablets in-store to process payments are seen as more up-to-date, efficient and customer-focused – good news for early adopters.

“But when we surveyed 500 small and medium business owners the majority, 67 percent, have no plans to adopt new technology and almost half haven’t updated their POS system in over three years,” he said.

“I also believe that when customers, especially the younger generation, see out-of-date tech in stores, they don’t trust that it’s secure and it takes away from their customer experience.”

The reported Apple Pay checkout problems come as the technology sees acceptance at 700,000 locations and by 2,500 issuers just five months after its rollout.

As of January, Apple Pay made up more than two out of every three dollars spent on contactless payments across the three major United States card networks.

There are multiple reasons why retailers have not taught employees how to process Apple Pay in-store payments or invested more heavily in the needed technology.

Lack of access to information is a big reason. Retailers traditionally have relied on a payment processor’s sales representatives to learn what new equipment they should purchase. Representatives are more focused on selling payment solutions and may not be familiar with the latest technologies.

Return on investment is another potential issue. Until recently, retailers did not see Apple Pay as something that could drive business. So while industry and the consumer understand the benefits of frictionless payments, business needs to be educated.

Fear of new technology also adds complexity to Apple Pay’s adoption.

“[In high volume environments] if it takes to long to train employees to accept a new type of payment, and if business don’t see the return on the investment, they may steer clear for now,” Mr. Hendersen said.

Lack of clarity around which types of terminals accept cards is another obstacle.

“Apple Pay supports chip and swipe based cards,” Mr. Hendersen said. “Not all Apple Pay capable terminals can support chip cards.”

Highlighting retailers’ ambivalence about Apple Pay in-store payments is new research from e-tailing group, an ecommerce consulting firm which produces an annual mobile shopping report. Of 38 stores e-tailing surveyed for an omnichannel research project, just 21 percent accepted some form of mobile payment in-store including PayPal, Apple Pay or Google Wallet. The retailers included Apple, The Home Depot, Macy’s, Office Depot. Staples, Sephora, American Eagle and Toys ‘R Us.

Apple Pay 400 3

Supporting chip- and swipe-based cards.

“You would barely know anyone offers this option as there’s little call out except on the device,” said Lauren Freedman, president of e-tailing group, Chicago. “Having to sign up in advance to process online is a deterrent and there appeared to be limited knowledge among associates.

“One would be hard pressed to see them asking customers about this to gauge customer interest,” she said.

Retailers who do not have a robust, omnichannel marketing strategy that includes mobile will find it difficult to look at mobile payments as a standalone or singular investment that will create value for the enterprise.

“The whole premise of a successful mobile strategy is to be able to communicate with customers wherever they are, and manage that relationship in the store and drive it to the finish line – i.e., payment,” Ms. Horwell said.

“Mobile payments also alter the traditional approach to retailing. The traditional retail model is that you drive a consumer into and through the store, customers find what they need, pay and leave. Mobile, however, is almost a self-service retailing model, which opens up another discussion about how much interruption consumers will tolerate as they shop.

“If they’re mobile payment-enabled, why do they even need to talk to an associate or go to a cash register?” she said. “If they’ve already found everything they need, they might not need an official interaction in a store. So retailers are struggling with how to incorporate new mobile capabilities into the design and layouts of stores without cannibalizing sales.”

To drive adoption of mobile payments in store, retailers should focus on unique loyalty benefits that consumers can get and evolving how they earn these rewards.

“When paying with a mobile device, consumers may feel that there’s more data that could be captured — and used in a smart marketing capacity later on — such as targeted offers and anticipating future shopping behavior and preferences,” said Lindsay Williams, vice president of media and analytics for Rokkan, New York.

Merchants possibly may be waiting for alternatives like CurrentC from the Merchant Customer Exchange (MCX) so they are not at the mercy of a single company, such as Apple, before committing money and training to Apple Pay.

“But the jury’s still out about whether any other options will be better, because no one really knows,” Ms. Horwell said. “And not knowing is one reason why retailers might want to wait.”

Spearheading change
Is it simply too big a transition for them to do quickly?

Apple Pay 400 2

Apple Pay has buy-in from financial institutions and software makers.

“I think it is more about education and training,” Mr. Hendersen said. “Retailers are working with their channel partners on what the right solution is for them.

“We know the successful model is that businesses who work with partners and adopt the right tech for their business are the ones who will win. “But it’s not going to change overnight,” he said.

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

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