Apple Pay Won’t Change Everything, But Smartphone Payments Are The Start Of Something Bigger

As large as e-commerce has become, it still represents only a small portion – about 6 percent – of total US retail spending. That makes brick and mortar a much more attractive target for companies looking to revolutionize the way we shop.

Of all its announcements last week, Apple Pay was the company’s most significant headline because it represents the company’s attempt to remake physical store transactions. On its own, though, Apple Pay strikes me as a solution in search of a problem, which is why the announcement represents only the start of a bigger story.

First, here’s a bit about Apple Pay. The technology enables users to store credit cards, debit cards, and loyalty card information in a digital wallet that lives on the phone. At a relatively small number of retail outlets today, iPhone owners will be able keep all these cards at home and instead tap their phones against an electronic payments hardware device to complete transactions.

While Apple devotees may think this will change the way we buy everything, skeptics, including myself, point out why the program on its own isn’t such a big deal.

  • Apple isn’t the first to try this. Other companies, including Google, have tried something similar.
  • Smartphone payments don’t appear to make buying things easier. I suspect most consumers don’t find swiping debit, credit, and loyalty cards to be a hardship, so selling this based on its ease of use is probably a non-starter.
  • Convincing users that Apple Pay is more secure is going to be hard. Smartphone payments, including Apple Pay, appear to offer more security, but coming as it does on the heels of Apple’s iCloud breach, and given how hard it is to explain payment security to the average customer, this angle could be a marketing challenge, too.
  • As long as customer adoption is sluggish, retailers won’t jump on board. Only about 2 percent of all retail locations have the hardware needed to accept smartphone payments, and that number isn’t likely to grow unless Apple can solve the consumer adoption problem.

For all these reasons, I don’t think Apple Pay will move the needle. That’s probably why revenue impact forecasts of Apple Pay are so modest.

What is far more intriguing, though, is the potential combination of electronic payment systems and in-store beacons. These beacons rely on Bluetooth signal transmissions that retailers can use to send electronic messages to shoppers, such as digital coupons, inside their stores. While my first impression of Apple’s iBeacon underwhelmed me, creating an ecosystem that recognizes and engages consumers at the start of their shopping experience and keeps them engaged all the way through checkout is an ambitious and, likely, lucrative outcome.

A senior digital agency executive once told me he saw enormous potential in the “Amazon-ification” of brick and mortar retailer. He meant using digital information so that even big box stores could know their most valuable (and opted-in) customers as they walk through the door, just the way our favorite mom-and-pop stores do. Any company that aspires to this outcome will need an ecosystem that goes beyond the mobile ecosystems that exist today.

As significant as the smartphone phone and tablet markets are, they aren’t the end-all, and anyone seeking to call the war of ecosystems over based on these markets alone isn’t seeing the much bigger picture.  After all, the battle for the retail ecosystem, just one of many amid the “Internet of things,” and, as I put it, the “App-ification of things” is just beginning.

One comment

  1. Stearns 205 · · Reply

    Solution without a problem is very apt. I agree with the lack of convenience when paying in person. (however, I have found paying online/on-phone to be pretty slick). Lastly, I don’t want to be bombarded with coupons or pinged all the time when I’m walking in or through a store. Customer engagement is intriguing but will require a lot of thought on how to execute it well.


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