It’s only been out for a day, but the buzz around Apple Pay is building. For the uninitiated, this is Apple’s answer to mobile payments that’s taking aim at disrupting an estimated $4 trillion market in the U.S. The mobile app allows users with an iPhone 6 or 6 Plus to simply hold their phone next to the reader at a checkout and hold down the main button that activates touch ID. No punching in a code to unlock the screen or swiping of credit cards required.
Apple Pay’s 10-second transaction is said to trump both Google’s Wallet and solutions from PayPal and other providers simply because of the multiple steps required to complete the transaction.
Though (mostly) seamless, the newness of the technology means that many consumers don’t have it yet. The near-field communication (NFC) technology is only currently available on the latest iPhones. It will be on the iPhone 5 in combination with an Apple Watch, but not until next year. On the flip side, many retailers aren’t equipped to take it just yet.
Among the 220,000 outlets that debuted the service already are mid-market chains such as Aeropostale and Urban Outfitters and app-driven commerce companies such as Uber, Instacart, and Tickets.com (part of MLBAM) Nearly a quarter of a million stores looks big on paper, but it only amounts to about 2.4 percent of the estimated 9 million merchants in the U.S. that take credit cards. The bulk of businesses aren’t equipped to handle transactions with NFC technology and would have to invest dollars and resources to upgrade them.
Another potential merchant stumbling block to making the investment is, ironically, the security of the Apple Pay system. Users must register their credit or debit cards with Apple Pay but those account numbers are not stored in the phone. What the iPhone does is connect with a third party company to get a “token” number to replace the actual card number which is them stored in the phone. When it’s time to pay, the only way to access the number is by scanning the phone owner’s fingerprint –the same way they unlock the device securely.
Three layers of fraud prevention might make a consumer sleep better, but it causes a headache for retailers trying to build customer loyalty. Apple Pay didn’t build in a way to access data to loyalty programs, so the consumer still needs to type in their phone number or swipe their frequent buyer card to get their rewards.