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Apple Pay hits U.S. stores Monday -- assuming buyers can find anywhere to use it

Matt Hamblen | Oct. 20, 2014
In-store and online purchases possible with new iPhones powered by Touch ID, NFC and secure token technology.

Despite a seemingly robust rollout, analysts criticized the relatively scant number of retailers on board, saying users might be frustrated in finding enough stores to make buying goods with a mobile wallet a habit.

Analysts said Apple Pay users will surely try out the in-store payment technology once or twice. But will they come back repeatedly?

In all, analysts predicted that Apple Pay will purportedly work in about 220,000 brick and mortar stores in the U.S. — just 5% of all available stores.

"That's a good number of stores, but in the scheme of things, that's just 5% of all merchants," said Peter Olynick, card and payments lead at financial services consultancy Carlisle & Galligher Consulting Group. He estimated it will take 10 times as many store locations to make Apple Pay effective.

"We'll see where they are after people use it a few times, and if it's as easy to use as we think it will be — and if they can increase the number of merchants from 200,000 to 2 million in a year, then we'll have something," Olynick said.

Having more than 500 banks backing Apple Pay isn't necessarily going to mean much with such a limited number of retailers, said analyst Jordan McKee of 451 Research.

"It's good that Apple has a lot of banks lined up, but it's where the consumers can use those cards that matters and Apple really hasn't done much on the payment piece," McKee said. "They haven't focused on the merchant, and many of the merchants they named were already accepting contactless [NFC] payments. They have to build out a two-sided value proposition."

Quick and secure payments

In his presentation and when Apple Pay was announced more than a month ago, Cook focused on the quick and secure ability to make a payment once a person's credit card is loaded into the phone. A user can use the phone's camera to capture an existing card's information, or can type in the information manually. Users can also rely on the credit or debit card already in an iTunes account as the default, assuming it is Visa, MasterCard or American Express.

A person's account information, including the 16-digit card number, is not stored on the phone or with the merchant, according to the credit card companies and Apple. Instead, token technology allows a unique digital Device Account Number to be generated that becomes a proxy for the primary card number, and that Device Account Number is then used in payments. If a phone is lost or stolen, the Device Account Number can be disabled without needing to reissue the primary card.

The Device Account Number helps keep each payment private, so that only a consumer's bank has access to billing details. The number is created, encrypted and stored in what's known as the Secure Element (usually a separate chip in a phone), which Apple insisted is "walled off from iOS and not backed up to the iCloud."


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