Apple Pay Finding Slow Consumer Adoption

Although still early in the game and with a huge base of iPhone users, Apple Pay has not yet achieved escape velocity. As the following article describes, Apple Pay faces a number of hurdles including consumer security concerns and merchant checkout staff’s lack of training.

Nancy Schrum watched curiously as a colleague from her law firm waved an iPhone above a credit-card reader to buy a Subway sandwich with Apple Pay earlier this year. “I have that, but I’m afraid to use it,” said Ms. Schrum, who feared the technology wouldn’t work.

When Apple Inc. AAPL +0.38% launched its mobile-payment service more than two years ago, it hoped to speed up the checkout process and, ultimately, to replace physical wallets for U.S. consumers.

Apple Pay has made significant headway, but Ms. Schrum’s wariness reflects a range of factors that analysts say have caused growth to undershoot their expectations, including security concerns about the service, retailers that don’t accept it, and Apple’s relatively paltry marketing. The pace of Apple Pay adoption has been “disappointing even to conservative expectations,” said Gene Munster, managing partner at Loup Ventures, a venture-capital firm specializing in tech research. Just 13% of the estimated 680 million iPhone users have used Apple Pay, according to the research firm. Eddy Cue, Apple senior vice president in charge of internet software and services, said the service has been adopted faster than other payment systems and he believes it will eventually replace cash, debit and credit cards as the primary payment system. “Does it matter if we get there in two years, three years [or] five years?” Mr. Cue said in an interview. “Ultimately, no.” Many U.S. consumers remain wary of such a service, according to technology research firm Creative Strategies: 40% are concerned about the security risks of adding a credit or debit card to their phone, and more than 60% aren’t familiar with contactless payments.

As with all the mobile pay apps including Android and Samsung, as well as card issuers and merchants, the key to consumer adoption is engagement and integration of multiple features beyond the actual payment. Shoppers need a better reason to use mobile pay apps that just the checkout transaction. Merchants that add value to their customers with loyalty, mobile order and pay, and marketing offers, drive more frequent usage and higher average spend. Make the pay apps like a game and consumers will follow.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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