Apple chases the cloud’s silver linings with Apple Pay.

As Stephen reported last week, possibly the most interesting Apple launch last week was that of the Tech Giant’s new NFC-enabled mobile payments service, Apple Pay. It’s left pundits wondering whether Apple’s entry into the lucrative payments market could invigorate consumers’ appetite for contactless payment solutions.

PayPal seems to be worried; its full page ads in US newspapers this week have certainly fuelled interest in the forthcoming battle to dominate this space. While PayPal currently has a huge share of the online payment space (with a revenue last year of $6.6bn – up 20% on 2012 – generated by moving $180bn in 26 currencies across 193 countries), PayPal’s foray into contactless payment has been less surefooted.

The eBay owned business has been talking about itself as “your wallet in the cloud” for years, but has made little inroads in terms of taking a share of high street payments. Perhaps PayPal’s biggest success in the US has been as a way of topping up credit for users of the Starbucks app which enables users to pay for their cappuccinos via QR codes and which apparently accounts for 10% of Starbucks payments in the US. Here in the UK, while PayPal is also supporting several retailers and restaurant chains with payments via their own apps, only 2,000 of the UK’s 270,000+ retail stores accept payment using the PayPal app.

It seems, to date, on both sides of the Atlantic consumer interest in replacing traditional card payments (whether magnetic stripe and signature there or chip and pin here) has been relatively low.

Is that about to change now Apple has entered the fray?

Apple’s solution is elegant in its simplicity, utilises existing technologies and payment infrastructures and effectively addresses issues of security: Apple Pay doesn’t collect payment history on the device or store account details on it; payment is made via a unique device account number rather than your card details and is authorised using a single-use code and fingerprint ID.

For the retailer, proprietary hardware won’t be required. Thanks to Apple’s agreements with MasterCard PayPass, Visa payWave and American Express ExpressPay, retailers will be able to leverage existing NFC contactless wave readers.
Reports suggest that major US retailers are keen to work with Apple Pay – including Macy’s, McDonalds, Nike, Subway, Walgreens, Bloomingdales – but it remains to be seen how fast this change will happen. At present, fewer than 5% of US retailers currently have a way of accepting Apple Pay payments, with Walmart notably eschewing NFC payment systems (although perhaps there isn’t too much of a natural crossover with Walmart and Apple Pay shoppers anyway. and WholeFoods have signed up it seems!).

Here in the UK, we have to wait until next year before Apple Pay becomes a reality. Which is strange, because in many ways the UK market might be more ready for it. We’re no strangers to contactless payment here: Transport for London has been operating the Oyster card scheme for more than ten years and began introducing contactless payments ‘proper’ using the contactless wave readers more than two years ago. TfL announced this summer that London’s buses are now a cash-free zone.

Moving all that cash in to the cloud reduces risks for drivers, removes the costs of managing cash for the business and hasn’t seemed to inconvenience passengers. And now Barclays have introduced a solution to help shoppers worried about ‘card clash’; whereby you end up paying twice because you have more than one NFC payment tool in your wallet – the bPay wristband.

You don’t have to be a Barclays’ customer to use the wristband – it can be linked to any UK bank account or credit card and swiped at any contactless wave terminal to pay for purchases up to the value of £20 (as per the contactless card). Its launch was timed to coincide with the tube roll-out of TfL’s new contactless payment system.

Could wearables be the way forward for contactless payments? Apple Pay will work with Apple Watch. Some banks are already developing Google Glass banking apps and there is talk of integration with Google wallet (launched way back in 2011). Google Wallet has been a slow burner, it seems. Will this change is Android users see Apple Pay succeed?

The contactless card is already accepted by quite a number of UK retailers – and leveraging this existing infrastructure seems a more straightforward way of going about contactless payments than PayPal’s approach. Perhaps the Apple Pay launch will be just the extra little shove the concept needs to encourage retailers to commit and, once they do and the payment mechanism becomes more widely acceptable, consumers to adopt.

The missing ingredient up until now has been the incentive to change – perhaps a little Apple marketing hype is all the incentive we really needed. Only time will tell.

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