One year ago, Apple Pay was introduced with great fanfare and relatively good reviews. Apple Pay is Apple's entry into the field of payments through near-field communications (NFC). NFC bypasses the need to read information directly off a credit card through the traditional swipe in a reader. Instead, it allows payment just by bringing your phone, which stores the necessary information, into near contact with the capable reader at the merchant. Apple Pay will open within the merchant's reader and you can complete your transaction there.
Apple Pay offers the advantage of several layers of security. Your card number is never transferred directly; instead, Apple Pay uses tokenization to send a randomized number that is good only for that particular transaction. The merchant never handles or stores your actual card number, keeping you safe from point-of-sale fraud and merchant hacks such as the Target breach. Meanwhile, Apple's Touch ID protects you in case your phone is stolen or lost, and you can suspend payments through the Find My iPhone feature (assuming you have it turned on).
With these features, Apple Pay provides great incentive for consumers to use the process. Unfortunately, it has limited acceptance so far, due to roadblocks from both sides. Although a reported 200,000 retailers have signed up for Apple Pay, there are many others that have not — including many smaller businesses that have not been recruited to accept Apple Pay and may be unaware of NFC payment options.
Merchants have a greater incentive to install higher security measures, because as of October 1st, they are now being held responsible for fraudulent purchases if they have not upgraded their payment readers to ones that accept the new EMV (chip-and-PIN) cards. Apple Pay was introduced well ahead of this deadline, hoping that merchants would upgrade to models that accept both EMV cards and mobile payment methods — if you have to upgrade, you might as well incorporate all the methods at once.
However, many of the larger merchants are slow in programming the readers to accept chip-and-PIN cards, much less Apple Pay — even though they have installed capable readers. Many smaller merchants have simply decided that the risk of being stuck with fraudulent transactions is not worth the expense and hassle of upgrading the card reader. As a result, the adoption process is in a wait-and-see mode. Since merchants are slow to provide the service, consumers are not lining up to link a card to Apple Pay or any of Apple Pay's mobile payment competitors.
Because of the limited acceptance by merchants, only about 14% of households in the US have linked a card to Apple Pay. That is up only three percentage points from the estimated total at the beginning of the year.
Apple Pay can also be used online or through mobile apps. In the case of apps, the ability to pay correctly depends on if the payment system was correctly incorporated in to the app. Mobile pay readers can allow the use of Apple Pay through companies like PayPal and Square. That convenience should be able to increase Apple's foothold, but the effects have yet to kick in.
Simple lack of advertising may also be hindering some use of Apple Pay. Apple does supply stickers showing that a merchant accepts Apple Pay, but not all retailers that accept Apple Pay display those stickers. Unless it is obviously displayed, most consumers will assume a merchant does not accept Apple Pay and will use other payment methods.
Apple Pay and other NFC and mobile payment methods will undoubtedly be fighting it out to dominate the field over the next decade, but at the moment, merchants seem to have their hands full just dealing with the upgrade to chip-and-PIN cards. Until the merchants are ready to accept Apple Pay en masse, consumers cannot follow.
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