Mobile payment is the Next Big Thing that keeps being the Next Big Thing. Despite the efforts of tech giants such as Google (GOOG) and PayPal, most Americans still buy their toilet paper and French fries with cash or plastic, just like they did a decade ago. Apple’s (AAPL) Sept. 9 launch of Apple Pay, which lets people buy goods and services with a wave of their iPhones, makes it more likely that things will be different in 2024.
As with iTunes, Apple’s promise lies less in technology than in its ability to broker peace between competing players and create a comprehensive system. Getting “merchants, banks, and networks to cooperate really was the thing that catalyzed the whole thing,” says Jim McCarthy, head of innovation at Visa (V). “Having a partner like Apple was really like catching lightning in a bottle.”
The past decade has been marked by other attempts to get people to ditch their wallets and pay digitally—a market Forrester Research (FORR) predicts will grow to $90 billion by 2017. PayPal has been trying to persuade brick-and-mortar merchants to use its mobile system. Big retailers are developing an app that would allow them to bypass payment networks such as Visa’s, and American Express (AXP) has been working with cell phone carriers on yet another system. “We love this kind of problem,” Apple Chief Executive Officer Tim Cook said as he announced the product. “This is exactly what Apple does best.”
$90b
Projected size of the mobile payment market by 2017
Shares of EBay (EBAY), which owns PayPal, declined 2.8 percent after Apple’s presentation. “If I were PayPal, I’d be worried,” says Denee Carrington, an analyst at Forrester Research. While Apple Pay also looks like a threat to Google Wallet, Rakesh Agrawal, a former PayPal executive, said in a blog post that Apple Pay could give Google a boost, because the industry won’t want to “be locked into an all-Apple ecosystem.” Anuj Nayar, head of global initiatives at PayPal, wrote in an e-mail that if Apple Pay “takes off, there’s no reason we couldn’t be another payment network,” like Visa or MasterCard (MA), working with Apple Pay. Payment startups Square and Stripe say they will integrate Apple Pay into their systems.
Apple Pay lets shoppers link their iPhone to their credit and debit card accounts and buy things online or in a mobile app with a single tap. In a store, shoppers put their phone near a checkout terminal, connecting via so-called near-field communication. Apple has signed up some of the country’s largest restaurants and retailers, including McDonald’s (MCD), Walgreens (WAG), Bloomingdale’s (M), Target (TGT), and Starbucks (SBUX), to accept Apple Pay when it goes live in October.
Under deals reached with banks, Apple will collect a fee for each transaction made through Apple Pay, according to a person with knowledge of the matter, who requested anonymity because terms aren’t public. While that gives Apple a share of the $40 billion-plus that banks generate annually from swipe fees, the banks expect to benefit as shoppers spend more via mobile phones. The banks also get to keep their names in front of consumers. At the launch event, an iPhone showed mini versions of a Wells Fargo (WFC) Visa debit card and a Chase (JPM)-branded credit card.
The next challenge will be persuading people to use it. KBW analyst Sanjay Sakhrani says people may see Apple Pay as a solution to a problem they don’t have. “Quite frankly, I can swipe my card almost anywhere,” he says. To gain broad acceptance, any payment system will have to offer some kind of incentive, as credit card issuers do with reward programs. “If you are an early adopter or a techie, then you would use it—everybody else would probably need a carrot,” he says. So the question is, “Who is going to fund that carrot, and what is that carrot going to be?”
