Keeping mobile payment users coming back
Jordan McKee, an analyst at 451 Research, said that even with Apple Pay's success, the U.S. is "still very much in the first inning of mobile payments [since] merchant and consumer adoption remains limited and that will be our reality for some time."
What Apple has started with smartphone and tablet payments amounts to "merely a credit card surrogate," on a device, McKee said. "Consumers will have no compelling reason to ditch current alternatives such as credit cards that work quite well."
What McKee is referring to is that Apple intentionally doesn't share Apple Pay purchase data with retailers in order to protect consumer privacy. By doing so, retailers don't get insights into their customers' buying trends nor do they have clearcut ways to offer their customers discounts and incentives. That's one advantage Starbucks has with its Starbucks card.
By registering a Starbucks card with a customer's birth date, the customer gets a free coffee every birthday. Is that possible with Apple Pay or other mobile wallet services?
"The critical thing to make mobile wallets effective is that both the merchants and the consumer get something out of the deal above and beyond just a replacement for a card being swiped," said Peter Olynick, card and payments lead at Carlisle & Gallagher Consulting Group. "The big thing Apple is marketing to date is enhanced security with Apple Pay, but I don't know if that's sustainable to keep people coming back again and again."
Even Apple Pay's security is ignored at some payment terminals
Even the security virtues of Apple Pay, with its use of tokenization to hide a user's card number, are being ignored by some retailers' point-of-sale terminals, Gartner security analyst Avivah Litan said in a blog.
Litan said Apple Pay tokens are not specifically registered as coming from an Apple Pay device by some retailers' new NFC terminals and instead are being treated no differently than if the transaction came from a chip-enabled credit card.
"The Apple token information is not being passed along," she said in an interview. "It's not Apple's fault...It's going to take a while to get the kinks fixed."
Litan said it is somewhat ironic that some retailers are coming forward to say that they accept Apple Pay when many retailers were already using new terminals that accept any NFC mobile payment system, such as the older Google Wallet or Softcard or even a card with an embedded computer chip. (See this guide to mobile payment options for more insight.)
Retailers are replacing older terminals with new NFC terminals primarily because of a bank and processor requirement to update their terminals for greater security that recognizes "pin and chip" credit and debit cards as well as devices with NFC, Litan noted. By October 2015, retailers face a deadline imposed by banks to bolster the security in their payment terminals or they must assume liability in the event of credit fraud.
Sign up for CIO Asia eNewsletters.