Most retailers are notoriously conservative, even lethargic when it comes to adopting new technologies. There’s also a herd mentality in the industry and so change doesn’t come unless competition compels it or selected market leaders set a precedent that others need to follow.
Indoor location (e.g., beacons) should be rolling out much more quickly — but isn’t. An analogous sector is mobile payments.
According to a survey from Reuters and the National Retail Federation (NRF), a large majority of the top 100 US retailers have not adopted Apple pay and do not intend to this year:
While some of the country’s top merchants said they use and like the mobile payment system, fewer than a quarter of the retailers said they currently accept Apple Pay, and nearly two-thirds of the chains said categorically they would not be accepting it this year. Only four companies said they have plans to join the program in the next year.
Reasons cited by retailer-respondents for not accepting the Apple payments capability are the following:
Perception of insufficient customer demand
Lack of access to [customer] data generated by Apple Pay transactions
Cost of required POS technology upgrades (though retailers are being required to upgrade this year for other reasons)
MCX/CurrentC — the competitive retailer-coalition payments platform (not yet launched)
Among those cited, the two major obstacles to Apple Pay (and Android Pay by extension) are the competitive CurrentC product, which will be exclusive until 2016 and the lack of access to customer transaction data. But just as the mobile carriers’ joint payments venture (ISIS/Softcard) struggled and ultimately failed, CurrentC is likely to struggle to gain adoption.
From everything I’ve heard and read, it’s not being built with users in mind. It’s being designed around retailer needs and interests: one of its objectives is to disintermediate credit card issuers by tapping directly into users’ bank accounts. However there are other reasons that it does make sense for retailers to develop a shared app.
It’s highly unlikely that the CurrentC user experience will be as good as Apple Pay and adoption will probably be modest. A better scenario for all would be to compete directly with Apple and Android Pay in an open market rather than blocking those services. That competition would undoutedly motivate development of a more compelling payments product than the current CurrentC.
By comparison, retailers that currently take Apple Pay (e.g., Whole Foods) report positive results so far. Anecdotal evidence and third party estimates also suggest that Apple Pay is being widely used where it’s accepted, though it represents a relatively small slice of transaction volume to date.
Whole Foods has said that Apple Pay is responsible for 2 percent of sales. On an annualized basis that would mean $284 million in gross sales, for which Apple would receive something like $426,000. It has been estimated that Apple makes $0.15 for every $100 of goods sold.
It’s not clear whether Apple Pay customers at Whole Foods are new or existing customers. Using myself as a “focus group of one,” I shop at Whole Foods more often because of Apple Pay.
There have been a number of user surveys that indicate only a minority of Apple iPhone 6 owners have tried Apple Pay. This doesn’t mean there isn’t pent up consumer demand, especially among younger users, for more convenient ways to pay in the real world. One of the key features of Uber’s victory over the taxi industry is the incorporation of friction-free mobile payments.
Because of the exclusivity requirements of CurrentC it’s unlikely that most major US retailers are going to rock the boat util that provision expires in 2016. At that point we should see broader adoption of Apple Pay and Android Pay for in-store transactions.
But Apple Pay and Android Pay will increasingly be incorporated into mobile apps for e-commerce and online purchases with offline fulfillment (e.g., OpenTable).
Mobile payments are not Google Glass; retailers shouldn’t take a “wait and see” approach. We are likely to observe a negative competitive impact on merchants that fail (by design or delay) to offer a simple and convenient mobile payments capability. The failure to get out in front of mobile payments will not only put them at a competitive disadvantage, it will damage brand value. This also happens to retail brands that don’t offer a good smartphone user experience.
It thus makes no sense to be passive (or passive aggressive) in the face of a now inevitable trend. Retailers should put their users first and make it easy for them to pay whatever way they want: CurrentC, Android Pay, Apple Pay or PayPal. Better yet innovate so that the retailer payments experience is better or simpler than Apple Pay.
That’s the way you win — not by being a protectionist.
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