Apple Pay Not Yet Paying Dividends To Apple, Says Research Report

A new report from researcher Aite Group is getting a lot of play on the one-year anniversary of the introduction of Apple Pay. The firm says that so far, Apple Pay has been slow to take off and asserted that its use impacts just 1 percent of retail transactions in the US.

There are various explanations offered for the slow uptake:

• Limited availability of NFC terminals in retail stores (roughly 19 percent penetration, according to Aite).
• Apple Pay is only available on newer iPhones.
• Lack of exposure/awareness among many iPhone users.

There’s also the oft-heard quip that there’s nothing broken about swiping a credit card at a POS terminal. Yet any experience of using Apple Pay makes that view look silly in retrospect.

Apple CEO Tim Cook has said several times, without providing specifics, that Apple Pay has “great momentum.” This Aite report appears at least superficially to contradict that claim. But upon closer inspection, it probably doesn’t.

The total value of US retail sales is more than $4.5 trillion annually, according to government data. Ecommerce is just over 7 percent of that total. If Apple Pay is truly responsible for 1 percent of retail transactions, that would mean roughly $45 billion — a non-trivial figure.

While it’s certainly true that NFC-enabled POS terminals are the gating factor surrounding in-store mobile payments, Apple Pay can be integrated into third-party apps, which in turn can be used to pay for things in the physical world (e.g., Uber, OpenTable). I’ve argued numerous times in the past that Apple Pay (and mobile payments more generally) will see their greatest near-term uptake in the form of in-app payments.

As mentioned, many of those in-app payments will be for experiences and services in the real world.

A March 2015 US Federal Reserve Bank survey of consumers about their experiences with mobile payments found that between 6 percent and 11 percent of respondents had used their smartphones to “[pay] for a product or service at a store.” The 6 percent were not self-identified mobile payments users, whereas the 11 percent were.

According to the Federal Reserve study, those who didn’t use mobile payments said the following:

1. It’s easier to pay with cash or a credit/debit card.
2. I don’t see any benefit from using mobile payments.
3. I’m concerned about the security of mobile payments.
4. I don’t trust the technology.
5. I don’t have the necessary feature on my phone.

Many of these statements reflect general consumer ignorance about mobile payments. But there’s growing evidence that, once experienced, Apple Pay generates repeat usage and loyalty. An August 2015 survey (n=205) by Wristly found that 80 percent of Apple Watch owners were using Apple Pay.

The lack of consumer awareness and experience with Apple Pay and its mobile rivals (Google, Samsung, PayPal) may be addressed over time, partly through competitive consumer marketing. At present, it’s still not fair to say that Apple Pay has failed to take off.

If accurate, the $45 billion in Apple Pay transaction value indicates a business well on its way.