JEK
Senior Insider
TECHNOLOGY
[h=1]Apple Pay Rolls Out, With Holes in System[/h][h=2]IPhone Payment System Arrives Monday; Ubiquitous Use Isn’t Assured Immediately[/h]
ENLARGE
Apple Pay will be accepted at 220,000 stores or inside apps using an iPhone.ASSOCIATED PRESS
By DAISUKE WAKABAYASHI and
GREG BENSINGER
Updated Oct. 20, 2014 12:31 a.m. ET32 COMMENTS
Starting Monday, Apple Inc. will begin its bold undertaking to add a wallet to its iPhones.
The iPhone already has pushed aside many once-independent devices, including music players, cameras and GPS navigation systems. Now, Apple’s new payment service will enable shoppers to buy items at more than 220,000 stores or inside apps using an iPhone and thumbprint.
Participants in the Apple Pay service include McDonald’s , Whole Foods and Walgreen. Yet it won’t be ubiquitous overnight.
Many retailers—including the nation’s largest, Wal-Mart Stores Inc. —aren’t part of Apple’s network. Only a minority have machines capable of reading the near-field communication radio signal that makes Apple Pay work. And only Apple’s newest phones, the iPhone 6 and iPhone 6 Plus, include the technology.
Apple has signed up the six biggest card issuers, accounting for roughly 83% of credit-card transactions, with 500 financial institutions coming by early next year. It also has the three major credit-card networks: Visa Inc., MasterCard Inc. and American Express Co.
Apple Pay is the technology industry’s most ambitious effort to position smartphones as a safer and easier alternative to cash, checks and plastic credit cards.
[h=4]MORE ON APPLE[/h]
Still, corporate credit cards or prepaid cards aren’t accepted yet. Neither are retailers’ proprietary credit cards, so shoppers can’t use their Macy’s or Bloomingdale’s cards. That means customers might miss out on discounts tied to the store cards, while merchants relinquish revenue they receive from issuing banks.
Macy’s spokesman Jim Sluzewski said he expects the Macy’s branded card to be added eventually. He said roughly half of Macy’s sales come from its proprietary card, which is also linked to its loyalty program.
Store-branded cards are “the big gaping hole in Apple Pay,” said Richard Crone, founder of Crone Consulting, a payments advisory firm, who estimates that merchants collect as much as 4% of each transaction with their proprietary cards.
Apple expects to resolve these issues over time. Many merchants are likely to upgrade their payment terminals in the next year to accept cards embedded with a chip, to avoid liability under new antifraud rules. More of the new terminals will be able to read near-field communications.
“We’re trying to do something that I think is a game changer and it requires a lot of people to play together,” said Eddy Cue , Apple’s senior vice president in charge of Internet software and services, in an interview. “There’s a lot to do here and we have a lot of work to do, but it should be huge.”
Apple Pay requires a consumer to register a credit card—either by taking a photo of a card or authorizing one already stored on Apple’s iTunes. Then, the shopper can make purchases by placing a finger over the Touch ID reader.
Apple Pay works with the latest iPads for in-app purchases, but the tablets can’t be used for payment in brick-and-mortar stores. Apple’s smartwatch will be equipped with near-field-communications chips when it arrives next year, potentially expanding the pool of Apple Pay users.
An important selling point for Apple Pay will be security, after high-profile data breaches at retailers including Target and Home Depot. Apple Pay encrypts each transaction with a distinctive code that can only be used once, a security feature that protects consumers’ personal information from being stolen as it is transmitted through a retailer’s network, or from the retailer’s central database.
Banks pay Apple a small percentage from each transaction, but there are no additional costs to users and merchants for using Apple Pay. Piper Jaffray analyst Gene Munster estimates that Apple Pay will generate revenue of $118 million in 2015 and $310 million in 2016—less than 1% of Apple’s estimated revenue of $180 billion in the fiscal year ended Sept. 27. The service also could boost demand for Apple devices.
ENLARGE
Apple executive Eddy Cue calls the Apple Pay system a ‘game changer.’ASSOCIATED PRESS
Mr. Cue said he expects the biggest share of early Apple Pay transactions to be in-app purchases. Until now, spending money on an app required a time-consuming process of creating an account and registering a credit card, but Apple Pay aims to simplify the process with the equivalent of Amazon.com Inc.’s “one-step checkout” that can be verified by a fingerprint.
Other attempts at mobile payments haven’t been widely adopted. In 2011, Google Inc. introduced Google Wallet, a payment service included in many smartphones running its Android operating system, but that initiative has failed to gain much traction.
Some big chains including Best Buy Co. and Wal-Mart are backing a retailer-owned mobile-technology group called Merchant Customer Exchange, which will employ software that can be used on both iPhones and Android phones. The service is still in pilot mode and won’t roll out nationally until next year.
“We believe that Apple Pay will accelerate mobile payment adoption, although it will likely take some time,” Morgan Stanley analysts wrote in a report to clients earlier this month.
—Robin Sidel and Suzanne Kapner contributed to this article.
[h=1]Apple Pay Rolls Out, With Holes in System[/h][h=2]IPhone Payment System Arrives Monday; Ubiquitous Use Isn’t Assured Immediately[/h]
Apple Pay will be accepted at 220,000 stores or inside apps using an iPhone.ASSOCIATED PRESS
By DAISUKE WAKABAYASHI and
GREG BENSINGER
Updated Oct. 20, 2014 12:31 a.m. ET32 COMMENTS
Starting Monday, Apple Inc. will begin its bold undertaking to add a wallet to its iPhones.
The iPhone already has pushed aside many once-independent devices, including music players, cameras and GPS navigation systems. Now, Apple’s new payment service will enable shoppers to buy items at more than 220,000 stores or inside apps using an iPhone and thumbprint.
Participants in the Apple Pay service include McDonald’s , Whole Foods and Walgreen. Yet it won’t be ubiquitous overnight.
Many retailers—including the nation’s largest, Wal-Mart Stores Inc. —aren’t part of Apple’s network. Only a minority have machines capable of reading the near-field communication radio signal that makes Apple Pay work. And only Apple’s newest phones, the iPhone 6 and iPhone 6 Plus, include the technology.
Apple has signed up the six biggest card issuers, accounting for roughly 83% of credit-card transactions, with 500 financial institutions coming by early next year. It also has the three major credit-card networks: Visa Inc., MasterCard Inc. and American Express Co.
Apple Pay is the technology industry’s most ambitious effort to position smartphones as a safer and easier alternative to cash, checks and plastic credit cards.
[h=4]MORE ON APPLE[/h]
- What to Look for When Apple Reports Earnings
- Why Apple Pay Faces Lighter Compliance Than Paypal, Google
- First Impressions of the iPad Air 2: It’s Refreshed but Not Reinvented
Still, corporate credit cards or prepaid cards aren’t accepted yet. Neither are retailers’ proprietary credit cards, so shoppers can’t use their Macy’s or Bloomingdale’s cards. That means customers might miss out on discounts tied to the store cards, while merchants relinquish revenue they receive from issuing banks.
Macy’s spokesman Jim Sluzewski said he expects the Macy’s branded card to be added eventually. He said roughly half of Macy’s sales come from its proprietary card, which is also linked to its loyalty program.
Store-branded cards are “the big gaping hole in Apple Pay,” said Richard Crone, founder of Crone Consulting, a payments advisory firm, who estimates that merchants collect as much as 4% of each transaction with their proprietary cards.
Apple expects to resolve these issues over time. Many merchants are likely to upgrade their payment terminals in the next year to accept cards embedded with a chip, to avoid liability under new antifraud rules. More of the new terminals will be able to read near-field communications.
“We’re trying to do something that I think is a game changer and it requires a lot of people to play together,” said Eddy Cue , Apple’s senior vice president in charge of Internet software and services, in an interview. “There’s a lot to do here and we have a lot of work to do, but it should be huge.”
Apple Pay requires a consumer to register a credit card—either by taking a photo of a card or authorizing one already stored on Apple’s iTunes. Then, the shopper can make purchases by placing a finger over the Touch ID reader.
Apple Pay works with the latest iPads for in-app purchases, but the tablets can’t be used for payment in brick-and-mortar stores. Apple’s smartwatch will be equipped with near-field-communications chips when it arrives next year, potentially expanding the pool of Apple Pay users.
An important selling point for Apple Pay will be security, after high-profile data breaches at retailers including Target and Home Depot. Apple Pay encrypts each transaction with a distinctive code that can only be used once, a security feature that protects consumers’ personal information from being stolen as it is transmitted through a retailer’s network, or from the retailer’s central database.
Banks pay Apple a small percentage from each transaction, but there are no additional costs to users and merchants for using Apple Pay. Piper Jaffray analyst Gene Munster estimates that Apple Pay will generate revenue of $118 million in 2015 and $310 million in 2016—less than 1% of Apple’s estimated revenue of $180 billion in the fiscal year ended Sept. 27. The service also could boost demand for Apple devices.
Apple executive Eddy Cue calls the Apple Pay system a ‘game changer.’ASSOCIATED PRESS
Mr. Cue said he expects the biggest share of early Apple Pay transactions to be in-app purchases. Until now, spending money on an app required a time-consuming process of creating an account and registering a credit card, but Apple Pay aims to simplify the process with the equivalent of Amazon.com Inc.’s “one-step checkout” that can be verified by a fingerprint.
Other attempts at mobile payments haven’t been widely adopted. In 2011, Google Inc. introduced Google Wallet, a payment service included in many smartphones running its Android operating system, but that initiative has failed to gain much traction.
Some big chains including Best Buy Co. and Wal-Mart are backing a retailer-owned mobile-technology group called Merchant Customer Exchange, which will employ software that can be used on both iPhones and Android phones. The service is still in pilot mode and won’t roll out nationally until next year.
“We believe that Apple Pay will accelerate mobile payment adoption, although it will likely take some time,” Morgan Stanley analysts wrote in a report to clients earlier this month.
—Robin Sidel and Suzanne Kapner contributed to this article.