Apple Pay: The Wallet Winner?

By Kevin Moland and Deborah Matthews Phillips

Despite all of the recent hype about Apple Pay, it’s still unclear which payments solution is going to dominate digital commerce. But that doesn’t mean that banks should wait passively on the sidelines under the victor is confirmed. Here are the multiple strategies that banks need to embrace during this uncertain time.

As consumers increasingly turn to mobile channels to manage their lives, technology providers respond by developing new tools that align with their on-the-go, always-on lifestyles. They have come to expect the same level of innovation in every area of their lives.

In financial services, mobile banking has proven to be a game changer. Offering the right mobile banking technology is increasingly becoming table stakes for attracting and retaining customers.

As mobile banking solutions have matured, robust capabilities have become commonplace. As a result, customers expect to be able to use their bank’s mobile app to manage their accounts, analyze their finances, deposit checks and engage with their bank.

These same expectations apply to digital commerce—the ability to use mobile devices to conduct research, identify the best deal, and consummate the shopping experience by paying with a smart device at the physical or virtual point of sale. Despite a crowded field of more than 200 mobile wallets, the promise of digital commerce has largely gone unfulfilled (with the notable exceptions of Starbucks and PayPal). Every January, industry experts declare that this year will be the tipping point for digital commerce. Every December, the same experts analyze the reasons for that year’s disappointing results. Even so, 2015 might finally be the year when digital commerce takes off.

What’s different about this year? There are a couple of factors contributing to this tipping point.

First, although more than one-third of millennials are expected to use a mobile wallet in 2015 according to FICO, digital commerce is no longer the sole domain of young tech-savvy customers. Mainstream consumers are embracing mobile commerce. Buyers between the ages of 35 and 44 are 23 percent of the digital shopper population, even though they account for only 18 percent of the general population. Baby boomers and seniors are getting in the act, too: One in every four mobile shoppers in the United States is over the age of 55. The expanding appeal of digital commerce supports Forrester’s forecast that mobile payments will triple to $142 billion by 2019, up from $52 billion in 2014.

Secondly, the launch of Apple Pay has been an undeniable inflection point. Apple Pay has reinvigorated the digital commerce landscape in a way that sets the stage for heightened interest on the part of consumers and merchants alike. Launched in October 2014, Apple Pay is now officially available at more than 220,000 locations, with industry experts’ unofficial estimates ranging as high as 652,000 North American purchasing points.

Off to a good start

Despite the fact that Apple Pay is in its beginning stages, early results are promising. In late January, Apple disclosed that “750 banks and credit unions have signed on to bring Apple Pay to their customers, and, in just three months after launch, Apple Pay makes up more than $2 out of $3 spent on purchases using contactless payment across the three major U.S. card networks.” USA Technologies recently announced its adoption of Apple Pay, which will add another 200,000 acceptance points.

For the consumer, Apple Pay offers more than a sense of novelty. Apple Pay has successfully incorporated the essential elements required for digital commerce ignition: enhanced security, a simpler (and faster) checkout experience, and relative ubiquity through its growing number of acceptance points.

Appealing to both consumers and merchants is a critical part of the recipe for a sustainable digital commerce ecosystem. Consumers will use a solution but only if it is available at the businesses they frequent; merchants must be confident that their efforts will result in increased sales and new customers before they will invest in new payment technologies.

For merchants, Apple Pay presents a trifecta of advantages. It offers a new way to attract affluent, tech-savvy customers. It drives increased spending per customer. For instance Apple device owners outspent Android owners by 25 percent over the last holiday shopping season. Apple Pay also delivers enhanced security—the top concern of retailers in 2015, according to a Boston Retail Partners report—with its combination of biometric authentication and tokenization. It helps speed customers through the checkout line, which improves merchant productivity and the customer experience.

Too soon to predict a wallet winner?

We Americans are a competitive bunch. Almost every sport is constructed so that at the end of the game, a winner and loser are clearly defined. Unfortunately, that same mentality often creeps into our assessments of far more complicated environments such as the payments market.

The question, “Will Apple Pay win the digital wallet war?” is based on a faulty premise. The mobile payments space isn’t a battlefield, it’s a homesteading process: The rush to claim market share will spawn several winners as consumers choose wallets based on a variety of factors. There will be losers, too; some wallets will be left behind because they fail to deliver a compelling value proposition for consumers and merchants alike.

Solutions such as Visa Checkout and MasterPass are emerging as contenders thanks to their ability to provide a faster, more convenient payment experience. Like Apple Pay, these services offer enhanced security features—a critical element of digital commerce success. (Security concerns were one of the primary reasons consumers previously failed to embrace mobile payments.)

Rumors abound of other challengers entering the space, and some are reinventing their approach. For instance, reports are surfacing that Samsung is in talks with LoopPay to embed its wireless card technology into Samsung’s phones, which could help them offer an Apple Pay-like solution that works at the vast majority of merchant sites today. There are numerous reports about Google’s next iteration of its wallet, including speculation about a service in which people with Android phones can pay at the point of sale by speaking their initials to the cashier. Other Google rumors include negotiations to buy Softcard, a mobile payments solution developed by telecommunications companies. CurrentC, the merchant-based wallet from MCX, is expected to launch this year, with desirable capabilities such as rewards, contextual offers and loyalty features—things that are currently missing from Apple Pay.

Developing a winning strategy

In light of this rapidly evolving and highly competitive landscape, you may be wondering if your financial institution should wait to see which digital payments solutions emerge victorious before moving ahead. The answer is a resounding “No!”

Banks must be willing to embrace multiple solutions if they want to gain and maintain market leadership and serve the needs of a diverse customer base. In digital payments, waiting for a clear winner to emerge is a sure way to become relegated to the sidelines. Just as the right mobile banking solution can bring in new customers, mobile commerce represents a compelling opportunity to demonstrate your bank’s leadership and differentiate yourself from the competition. According to Alix Partners, digital commerce can play an important role in influencing consumers to switch to your bank.

Because most financial institutions have limited monetary and human resources, it’s prudent to first develop a digital commerce strategy that makes sense for you and your customers. The highest (and most immediate) priority is ensuring your bank’s cards are a key part of all of your customers’ payments experiences. Well-designed customer communication and education campaigns should be a primary part of this strategy.

To put it simply, being on top of the digital wallet isn’t about having the best card for Apple Pay or other competing solutions, it’s about being your customer’s card provider of choice for every transaction. There’s good news on this front: Surveys suggest that key demographic groups are already inclined to use their primary bank’s credit card as their default. According to Mercator, 40 percent of 35- to 64-year-olds, and 64 percent of consumers between the ages of 18 and 34, use a card issued by their primary bank most often.

When your customers are faced with a decision about how to pay for a purchase, the drivers that govern which card they pull out of the leather pouch in their purse or pocket will be the same ones that govern which card they’ve set as the default form of payment in their digital wallet.

That decision is usually based on factors that have very little to do with the digital wallet itself. Will one of my cards get me a discount? Is there a superior rewards option for a particular card at this specific merchant? Do I want this transaction to pull immediately from my checking account, or do I want to finance it as a credit purchase? What gets pulled out of a consumer’s wallet—physical or digital—is governed by a benefits matrix embedded deep inside the buyer’s brain.

Your bank needs to employ the same strategies to position your cards at the top of the virtual list that it uses to get your cards chosen for physical transactions. (There’s one exception to this rule: You can’t be the default payment method in Apple Pay if you don’t support it. Not being on the list of choices is a sure-fire way to exclude yourself from consideration.)


Key messages that resonate with your customers

Your strategy can only be successful if your customers hear and understand your message. Here are some steps you can take:

  1. Start your communication and education campaigns by touting the advantages of your cards. These key messages validate the reasons why your customers should choose your cards as their go-to payment method. Does your bank offer customers rewards and incentives? If not, consider promotional campaigns to incent your customers to reach for your card first.
  2. Make sure your customers are aware of the security features offered in your card products since security is (and will continue to be) a prominent consumer hot button. Many banks today give customers the ability to “turn off” their cards, which helps them feel in control and makes them more confident that their payment information is secure.
  3. Be prepared to respond to customer questions about popular new solutions such as Apple Pay. It is critical that you serve as an educational resource for customers interested in adopting new payment methods. By doing so, customer perception of your bank as a market leader and innovator is enhanced. Plus, if you can help customers understand the benefits of these emerging methods, customers are more likely to put your card at the top of the wallet they select.
  4. Make sure your staff can explain how to use your bank’s cards safely and easily in digital payment solutions. Train them so they’re prepared to answer questions about the enhanced security offered by tokenization and other new fraud prevention technologies associated with digital commerce solutions.
  5. Advertise that you support Apple Pay and other digital payment solutions. Not all banks have the marketing budget for a big splashy campaign, but there are less costly tools that can be leveraged to drive awareness (See No. 6).
  6. Use social media to let your customers and your community know about the bank’s participation in innovative new payment methods. Have contests or implement rewards that encourage social sharing using a bank-branded hashtag when a customer uses your card. The same promotional plan can be used to ask customers to share pictures of themselves outside of the merchant where they just made a digital payment using your bank-branded card.
  7. Engage in internal education. Evangelize the concept across your bank that digital commerce is no longer just about the payment—it’s an opportunity to deepen customer relationships and drive engagement.

Executed smartly, digital commerce represents an opportunity to strengthen your brand in the eyes of your customers. Don’t let the uncertainty of the evolving digital landscape blind you to the possibilities inherent in this new payment paradigm.

And remember that even in this new world, traditional strategies—such as keeping your bank’s cards at the top of your customer’s wallets—are still a key component of the brighter future you want for your bank and its customers.


Apple Pay: The Potential Drawbacks

Apple Pay is not without its challenges. Because the solution is device-based and only the newest Apple devices are compatible, the number of smart device owners using the system is limited today. This is a temporary obstacle, because the replacement cycle will inject a constant stream of new Apple Pay compatible devices into the marketplace.

But Android owners and Windows phone users are locked out of the Apple Pay ecosystem, and together they represent half of the smartphone owners in the U.S. Another barrier to Apple Pay ubiquity is the technology’s reliance on near-field communication (NFC) terminals at the point-of-sale. Currently, the percentage of NFC-enabled terminals is in the low single digits. This challenge may dissolve with time, as industry experts expect NFC percentages to rise as part of anticipated widespread EMV (Europay/MasterCard/Visa)-driven terminal upgrades.


Information About Payments

Need information about Apple Pay or other payments systems? A good source is ABA’s Center for Payments and Cybersecurity (

Under the Payments portion of the website, there are frequently asked questions about Apple Pay and other payments systems. It also contains analyses from ABA staff.


Exactly How Secure Is Apple Pay?

One appeal off Apple Pay is its enhanced security. For one thing, it uses a tokenization system to improve the security of consumer card information. However, criminals already have found a way to breach defenses by loading already-stolen credit cards on the system. The Washington Post reported recently that there has been a sharp rise in reports of fraudulent Apple Pay transactions since the system went live last October.

One payments analyst estimated that as many as 6 percent of Apple Pay purchases are done with stolen credit cards, the newspaper reported. “As it turns out, it might have been better if Apple Pay required users to do more to prove their identities when they sign up for the service,” according to the Washington Post.

Kevin Moland is director of enterprise payment solutions product management and Deborah Matthews Phillips is managing director of payment strategy at Jack Henry & Associates, a provider of computer systems and ATM/debit card/ACH transaction processing services for financial services organizations.

Online training in digital, mobile and social media from ABA.