Opinion

Taming the fragmented sales beast: Should Apple Pay excite UK retailers?

8 min read

22 December 2014

Considering mobile payments are expected to hit £149.1 billion globally this year, you would expect Apple Pay to excite British retailers. Apple’s enormous market share throughout the UK makes it seem like an even more perfect fit. However, there’s more to the story.

To recap, Apple Pay is the September-announced transactions service for the iPhone 6. Using near field communications (NFC) – the technology that allows contactless payments and sharing – a secure in-device chip and fingerprint ID, customers are able to register their bank cards to then make transactions with retailers in seconds. 

Of course, the mobile payment market is a fragmented beast that everyone is trying to tame because the mobile payment space is also an area set to be seriously lucrative. People will not only be spending money, but also handing over valuable data – such as what they shop for, where and why they do it (Apple has promised it won’t be taking data – for now). 

While various organisations, from retailers to banks to startups, are trying to join the mobile payments space, consumers are ultimately suffering and the industry is still years behind where it should be. Throw security and privacy fears into the mix and we take even more steps backwards. 

Apple, a trusted brand with a phenomenal fan base, stepping in with the introduction of Apple Pay to close the gap between consumers and the mobile wallet market should help to iron out these problems, right? After all, it is the world’s most valuable company and generally knows what it is doing bar a few hiccups here and there (did someone say Apple Maps?). But that’s not necessarily the case.

When Apple Pay was launched, the intense competition within the space immediately became evident. A consortium of US retailers led by Walmart, including CVS and Rite-Aid, responded to the launch of Apple’s mobile payment system by disabling NFC chip readers in all their credit card terminals. Instead they announced they would focus on implementing a QR code-based app from Merchant Consumer Exchange (MCX) called CurrentC.  In creating this platform they have made it very clear that they want to block Apple Pay and other NFC-enabled payment systems such as Google Wallet, and control a significant piece of the £1.3 billion mobile payments market with their own solution. 

The retail consortium hopes to have a positive impact on gross margin by cutting down credit card transaction fees, as CurrentC is run through bank debit cards. CurrentC is also an attractive initiative for these retailers as it offers opportunities to gain access to immensely valuable customer data.

So what will Apple do?

Apple Pay, which has already launched in the US with American Express, MasterCard and Visa, will come to the UK and the rest of Europe in 2015. Visa will work with Apple to roll out Apple Pay through 1.5 million Visa contactless payment terminals found in stores across Europe. The large partnership between two behemoths will be highly secure and appeal to hundreds of millions of existing Apple and Visa customers. It’s also a sign that Apple isn’t entering this space half-heartedly.

Figures from Visa Europe further support this. Across Europe there are 90m contactless cards in circulation. The average transaction using contactless is £7.45 – showing that UK consumers are warming to the new form of payment, which naturally increases adoption rates amongst retailers, large and small. It’s a growing market with more and more transactions, as Visa reports 20m contactless purchases in the whole of May 2014 in the UK, with a total value of £126.7 million.

Given Apple’s significant market share, it is inevitable that its payment solution will only further enable and encourage people to use contactless payment solutions even more. The system is not only easy to use, but also given its on a device that so many people use already, Apple Pay immediately has a head start in the race against its rivals – particularly a new starter such as CurrentC.

However, there is still a need for Visa to ensure customers are educated on the opportunities because too often, such as with Google Wallet, market penetration is low. This can be for a variety of reasons including confusion, security fears or lack of information. 

There is also no sign as to whether CurrentC or a similar platform will rise up to take on Apple this side of the Atlantic.

Who will win?

In reality, retailers are not well positioned to take on a technology business. The war on mobile payments is unlikely to be won by a retailer, which makes CurrentC’s launch so surprising. 

The infrastructure needs to change for retailers to cope with these differences at purchase point. Consumers are looking for easy, quick and safe payment solutions rather than contactless cards, which we are more familiar with. The technology in Apple Pay is going to be the tipping point in the UK (and Europe) for mobile payments, where most current account holders already own touch to pay cards. This dated QR code style that CurrentC has developed is unlikely to revolutionise the way consumers shop. While MCX’s group represents roughly 50 retail partners processing nearly $1 trillion in annual sales, it is still going up against Apple Pay’s exceedingly easy system and ultimately the power lies with consumers who get to decide how they pay.

Add to this the steadily rising brood of retailers that Apple is gathering in its corner (it claims to have over 220,000 stores on board in the US alone) – such as McDonald’s, Nike, Subway and Whole Foods just to name a few – and it would appear CurrentC might just be fighting a losing battle.  CurrentC’s launch also got off to a pretty rocky start; the service was reportedly hacked before it even went live. This is a big concern, and further supports the theory that this offering may be rushed out a bit too fast. 

Overall, the UK is well advanced when it comes to contactless payment technologies. Businesses, such as Pret a Manger and Tesco, are already accepting payments through NFC. While there have been many failed attempts and no one has taken control of the market, there is a great opportunity for UK companies to take advantage of such innovations in mobile payments.

However, UK retailers would do well to keep all eyes on their core business and deliver a payment experience that their customers want instead of trying to shut down customer experience facilitators such as Google and Apple. Ultimately, this is about a data ownership war and controlling mobile payments is not the only way to win.

Emma Crowe is the senior VP of client strategy at mobile marketing agency Somo.