Viewpoint: How Apple Pay Could Impact the Future of Retail

By Jonny Evans, Computerworld

While industry observers think Apple Pay adoption hasn’t yet hit a critical mass, the mass it has hit (with 1 million more users added each week) makes it a substantial alternative to the use of contactless payment cards.

Retailers should think a little harder about how they can work with Apple Pay, as Apple doesn’t merely present a payment system but also offers a host of supporting technologies retailers can’t ignore. By the time you read this, the company has discussed them at WWDC 2016.

We all know Apple’s retail-relevant technologies include:

• Hardware: iPhones, Apple Watch. These devices are popular and it is widely recognized that their users are active consumers happy to purchase online and from mainstream retailers.
• Security: Because Apple Pay uses what the company calls a “secure enclave” token-based system to drive its payment technologies, it is actually more secure to use than a card because the account details are never visible during the transaction.
• Biometrics: Use of fingerprints means others cannot easily use a stolen device to make a payment.

However, when it comes to retail, the company has much more to offer, including (now or in the near future):

• Personal payments: At time of writing Apple is expected to introduce the capacity to pay other individuals using Apple Pay and iMessage.
• Online payments: The capacity to pay for products—not just iTunes—online is also anticipated.

Apple platforms also offer:

• Beacons: Apple has been developing beacons and indoor-mapping technologies for several years. These are the technologies the retail industry has been waiting for, enabling merchants to share coupons, codes and other consumer-focused communications, as well as enabling digital transformation of how stores are run.
• Personalization: Smartphone use is addictive, and users are becoming more comfortable sharing their data. Retailers know this, and are already working with online advertising firms to finesse the customer toward final purchase.

• Loyalty: Arguably the missing piece when it comes to Apple Pay in retail, the current trend sees retailers attempt to convince consumers to use their own apps, with varying degrees of success—shoppers don’t want to switch between apps to get things done using their iPhones, and they don’t want the hassle of entering loyalty codes in one app and then paying in another. Retailers also have failed to achieve traction with alternative payment service providers of their own, so it seems inevitable they will seek alliances with Apple and other secure mobile payments providers, particularly in a context in which 57 percent of U.S. adult smartphone users are interested in using loyalty and reward schemes inside their mobile wallets. When they do so, it’s also inevitable that the payment process, coupon and loyalty discounts and points systems all will become part of the same transaction: This means when a registered customer pays with Apple Pay, the retailer will gather at least some information about the purchase.

On Privacy

That last point is the big challenge for Apple, of course, given its public statements on the need to protect privacy in a digital age. Indeed, iAds—an Apple ad network set to end on June 30—arguably failed because the company declined to give advertisers the depth of personal information they collect from other ad networks. However, while a user cannot choose what ads they receive, they choose where they shop, and that intent means a user should be able to link Apple Pay purchases to a specific retail loyalty app, subject (I guess) to biometric authorization and beacon-based presence authorization. (The latter would confirm the identity of the retailer.) The problem with securely merging proprietary retail systems and Apple Pay while respecting customer privacy is complex, but Apple is working on it, as this patent proves. With banks already introducing contactless NFC-based cash machines, that problem may be close to resolution at this point.

Apple’s focus on security may deliver benefit in the long term. The most recent Walker Sands Future of Retail study observes:

“Privacy and security concerns remain the primary reasons that consumers are hesitant to use mobile payment applications. This could explain why adoption has essentially remained flat year over year, with about a third of consumers having used these applications. That said, findings suggest peer-to-peer payment applications may be taking off faster than point-of-sale mobile applications, especially among younger generations, with 44 percent of respondents ages 18 to 25 having used a P2P app in the past year.”

One Step Beyond

Apple also is moving as rapidly as it can to make its payment system global. “We’re working rapidly in Asia and also in Europe, our goal is to have Apple Pay in every significant market Apple is in,” Jennifer Bailey, vice president of Apple Pay, recently told TechCrunch.

One thing many in the industry may overlook is the impact of artificial intelligence and big data analysis on main street retail. Apple and its payment systems also have a big string to pull here—this time in the form of the company’s alliance with IBM. IBM’s Watson already is seeing deployment in retail situations, and it seems highly probable that both companies will want to weave Watson AI into the retail experience using Apple Pay and Apple Wallet at some future point. Data usage is driving digital disruption in retail, generating a perfect storm between customer intent and experience, loyalty and analysis schemes, coupons, rewards, payments and mobile technologies.

What’s important to understand within that is that with its control over hardware and software, Apple is in a great position to develop and provide secure foundations from which retailers can profit from this digital transformation. Not only this, but Apple customers tend to be relatively affluent, engaged and platform loyal to the point that failing to support their chosen system can be enough to drive them to shop elsewhere.

With all this in mind, I strongly advice C-class executives in the retail space 1) not to discount the importance of Apple Pay and 2) not to miss its potential to radically transform their business in the coming months.

Jonny Evans is a freelance journalist who writes a daily Apple-focused blog at Computerworld. He has a reputation for delivering early insights into a company and a talent to explain how these fit within wider industry trends. Having read his ‘Here is the future of Apple Pay‘ report in Computerworld, Paybefore invited him to discuss Apple Pay and its potential significance to retail. Follow him on Twitter.

In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.