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Why Apple Pay’s second year will be harder than its first: Forrester

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October 20, 2015

Apple Pay had a good first year

Apple Pay had a good first year

While Apple Pay’s adoption rate so far is encouraging, the solution faces resistance in many countries, is viewed as a threat by some banks and still needs to prove its value for merchants, according to a new report from Forrester.

In its first 12 months, Apple Pay made notable gains in building a meaningful presence in the United States and Britain with financial organizations, retailers and consumers, according to the report, Apple Pay Should Be Part Of Your Bank’s Payment Strategy. While it is facing some significant challenges building on that success, Forrester still expects Apple Pay to be a permanent part of the payments landscape in many developed countries.

“Expectations for Apple Pay have been high, simply because it is Apple,” said Jacob Morgan, a senior analyst at Forrester Research and author of the report. “In truth, Apple Pay has achieved some impressive early success in the U.S.

“However, converting two promising launches into long-term success remains a daunting business challenge,” he said. “Many in the market, though not Apple itself, seem to underestimate the substantial challenges Apple Pay will have to overcome.”

Lasting partnerships
Apple Pay, which launched during the fall of 2014, combines both an in-store contactless payment solution with a one-touch in-app purchasing capability. It leverages tokenization to address security issues, a method that is quickly becoming an industry standard.

Currently, Apple Pay is available in the United States and Britain. In the U.S., 6 percent of iOS users used Apple Pay in the first nine months.

One reason for Apple Pay’s early success has been the breadth of partnerships with issuers, merchants and developers.

Apple Pay 400 3

According to Apple, its mobile wallet will be available at more than 1.5 million point-of-sale locations in the U.S. by the end of this year. Approximately 455 banks and credit unions in the U.S. support Apple Pay.

Apple also continues to see brisk sales for newer devices compatible with Apple Pay.

Apple is also partnering with Stripe, Braintree, Square, PayAnywhere and iZettle to enable its payments solution to be integrated into their offerings.

The opposition
Apple Pay’s expansion into other countries is not going as smoothly, with the solution facing competition and opposition.

In China, Apple Pay has been unable to strike a deal with the country’s central bank and state-owned debit and credit card system.

Screen Shot 2015-10-19 at 2.00.45 PM

In Australia, which has a high level of contactless payment use, the leading banks have their own mobile payments solutions and, so far, have kept the door closed to Apple Pay.

In Canada, which also has high contactless penetration, Apple Pay faces push back from banks over fees and security.

Roadblocks
In general, banks are a stumbling block for Apple Pay because they are concerned that Apple’s ownership of the interface will suppress their brand and support disintermediating the bank.

Merchants are looking for value from wallets beyond reduced fraud risk and lower interchange rates, something Apple Pay will need to address. Forrester expects richer merchant solutions leveraging Apple Wallet and iBeacon to be forthcoming.

Apple Pay’s fee structure is an important roadblock, especially since Google is offering Android Pay without a per-transaction fee, thereby reducing Apple’s bargaining power with card issuers.

Despite these challenges, Forrester believes Apple Pay will become a permanent part of the payments landscape in many developed countries. As a result, financial organization need take a close look at whether or not they should be partnering with Apple Pay.

“The future is all about mobile,” Mr. Morgan said. “When so much focus is on the ‘mobile moment of truth,’ on meeting – or exceeding – customer expectations, why not harness the class of the field?

“Accept it: You will not be able to improve on the slick, secure mobile moment that Apple has delivered with Apple Pay,” he said. “Apple has the interface and customer experience sewn up.

“Apple Pay is its native mobile payments app. With a native app, you can harness all the features of the device, but you are tied in to a specific operating system. You pay the price for this, but your customers get the standout experience.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York

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