A year after Apple Pay launched with proclamations that the mobile payment service “will change everything,” the dust has far from settled and assessing adoption is a mixed bag of eager beavers.
Several equally big name competitors have emerged to make their own bid for share in the emerging new channel, and while financial institutions — including hundreds of credit unions — have jumped in, actual use of Apple Pay in fact may be lagging.
For instance, Accenture last week released results of its 2015 North America Consumer Digital Payments Survey, which found that while the number of North American consumers who know they can use their phones as a payment device jumped nearly 10 percentage points since last year, to 52%, actual payment usage grew only 1%. And fewer than one in five of the 4,000 smartphone users polled in the U.S. and Canada use their phones to make at least one payment a week.
Another widely cited think firm, Phoenix Marketing International, just reported that its research among 15,000 consumers it’s been following since the Apple Pay launch finds that 14% of U.S. householders have signed up for Apple’s payment service by the end of September, up only three percentage points since February.
Meanwhile, Apple Pay remains the clear leader in the nascent mobile payments space, as competitors like Google and Samsung have just begun to gear up, and its own growth could be limited by the fact that it only works on the latest iPhones. The point-of-sale terminal ecosystem also remains to be evolved to accept those touch-and-pay tokenization systems, too.
And, really, it’s all relative, says Amanda Smith, manager of emerging products and integration at CO-OP Financial Services. “Although we’ve seen more changes in the past two years alone than the past 20 combined, it actually takes time for things to settle in the market,” Smith says.
The watershed everybody keeps expecting might just be around two or three more corners.
She says many factors will impact the rate of adoption going forward. “You know the old adage, ‘If it ain’t broke, don’t fix it?’ Well, members won’t use their phones unless they’re incented to do so or unless the experience is better than the current swipe experience,” Smith says.
The terminals need to be more widely available for that to happen, too. As Cindy McGinness, manager of digital channels at PSCU, observes, “While there are more cards available for use, merchant acceptance of NFC transactions has not dramatically changed to create the ubiquity that customers are looking for and need to change their behavior from a swipe to a tap.”
McGinness says about 110 of her CUSO’s member-owner credit unions are now live on Apple Pay, with about that many more in the pipeline to launch. Thus, while like Apple itself, PSCU is reporting double-digit growth in Apple Pay usage, the transactions themselves still represent less than 1% of PSCU’s total card transactions.
Credit unions, meanwhile, must meet member expectations while at the same time trying to hang on to traditional interchange income. The threats to that source of non-interest income are many and multiplying, including fledgling competitors like MCX that use ACH rails and not the cards. That includes Target’s Red Card, which as one industry observer points out, “takes money out of credit union accounts and the credit union pays for it.”
That observer is Ben Rogers, research director at the Filene Research Institute. He notes that Filene surveyed the 150 largest credit unions about whether their members had different expectations of them than they would of any other credit union. “The vast majority said there’s no difference in the eye of the consumer. And that puts the onus on the credit unions to find a good partner when it comes to mobile payments,” Rogers says.
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Rogers also points to Filene’s recent report, Turmoil in Payments: Keys to Credit Union Success, and one of its conclusions: “Apple Pay has brought the concept of digital wallets into the mainstream, but it’s still too early to gauge its overall impact. Watch for deep-pocketed hardware and software competitors to emerge. Early returns indicate that mobile payments are primarily displacing credit and debit card swipes rather than migrating (and monetizing) cash and checks. To date, mobile wallets serve more as a form factor than a new core payment method.”
That said, here’s a quick update on the major players:
Apple Pay: While only available on versions of iPhone 6 and Apple Watch, Apple Pay still remains the dominant player, accounting by some reports for more than two-thirds of all mobile payments in U.S. stores. Other reports say Apple now is working to build momentum by linking with store-branded cards such as Kohl’s and rewards programs such as Walgreens’.
Android Pay: Google has replaced its original Google Wallet with Android Pay. Consumers can load all their debit and credit cards into Android Pay and use the NFC system to pay at any POS terminal that accepts it. Android Pay launched in September with Navy Federal Credit Union as one of its first users.
Samsung Pay: Samsung phone users — and there are millions of them, might be confused to find both Samsung Pay and Android Pay apps on their new phones. Samsung Pay also launched this fall and while it’s not yet citing U.S. numbers the Korean mobile device giant also lists several credit unions among its first adopters.
Chase Pay:You heard it right. JPMorgan Chase has partnered with merchant-owned MCX to create Chase Pay, a closed-loop network that will include retailers such as Wal-Mart, Target, CVS, and Best Buy. That network represents north of 100,000 retail locations and 94 million debit, credit, and pre-paid card accounts. Chase says Chase Pay will be available in mid-2016 and work wherever CurrentC — the MCX payment system — is accepted. Of course, that rollout has been slow and spotty at best. And critics point to that channel’s reliance on QR codes as somewhat archaic.
Paydiant/CU Wallet: PayPal bought Paydiant and Braintree earlier this year. Paydiant powers the MCX technology, and that of some other major retailers, including Subway, and Braintree adds mobile card processing tools. Paydiant also powers the digital wallet offering from CU Wallet, a Los Angeles-based CUSO.
Who’ll lead the pack here is far from decided, since the competition has barely begun. Each service has its own strengths, vulnerabilities, and backers, and the drive for omnichannel means merchants and issuers alike will strive to provide as many as they can.
Those who can become the widest available the most quickly, however, might have an edge. In that regard, McGinness at PSCU points to Samsung Pay. “With its MST (magnetic secure technology), it could be the game changer as it can be used almost everywhere and could become consumers’ first choice for payment,” the CUSO’s digital channels manager says.
So, it’s still watch-and-wait time for many financial institutions as their own side of the transaction matures technologically, while at the same time the point-of-sale systems choose their partners and deploy their tidal wave of wave-and-pay devices (many of them also equipped with EMV, to further muddy the waters).
“Once these things occur, we’ll start to see an uptick in adoption,” says Smith at CO-OP. “At this point, credit unions should be gearing up and getting their technology ducks in a row as the merchants update their terminals and processors work with the national brands to finalize the new processes needed for these wallets.”
Or as Rogers at Filene says, “The watershed everybody keeps expecting might just be around two or three more corners.”