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Apple Pay Won't Sink Smaller Players -- Here's Why

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POST WRITTEN BY
Derek Webster
This article is more than 9 years old.

Apple had long been rumored to make a big play in payments, and on September 9 finally unveiled the first step with Apple Pay. The demo was slick, showing an elegant payment experience - so fast that they had to repeat it "in case you blinked." Apple CEO Tim Cook was proud to reveal a frictionless reality that makes paying completely seamless.  As the Founder of a mobile payments startup, I've received dozens of calls and emails from our investors, advisors, customers and partners asking "what now?"

Building a payments business is tough. Many well funded entrants like Google Wallet and Softcard (originally named ISIS) have struggled. Merchant Customer Exchange, a consortium of the top retailers in the United States was announced over two years ago and still hasn't launched. Countless startups build innovative payment experiences but struggle to gain adoption because of the chicken-and-egg nature of consumer and merchant adoption. For retail purchases, Apple Pay uses decades old contactless/NFC technology that has thus far failed to get widespread traction in the United States.

That being said, there have been a number of breakout successes likes Stripe, Braintree (now owned by PayPal) and Square that have emerged in just a few short years, and many opportunities still remain for new entrants in a post-Apple Pay payments ecosystem.

While nobody knows exactly how the coming years will play out, one thing is certain: Apple's foray into payments will cause changes for payments incumbents and innovators alike. With that in mind, here are some opportunities for new innovations in the years ahead:

  1. Enabling contactless payments for retail merchants. Fewer than 5% of retail merchants in the U.S. will accept contactless payments at the time of Apple Pay launch. Assuming Apple's support can lead merchants to make the investments in accepting contactless payments, there are great opportunities for new entrants to bring acceptance to millions of merchants.
  2. Reducing mobile abandonment.  Consumers are increasingly using their mobile devices to browse and shop. This creates new challenges for e-commerce retailers as shopping cart abandonment is a major frustration, with two out of three purchases abandoned, a rate much higher than in traditional e-commerce. Merchants have every incentive to shorten the checkout flow. In this context, it’s easy for a merchant to identify an Apple Pay eligible device and steer them towards that method. Not requiring the user to type account numbers, billing and shipping addresses is a huge win for consumers and merchants alike. There is a huge opportunity to bring this functionality to merchants quickly by building connections between Apple Pay and popular e-commerce software platforms or other merchant software.
  3. Developing integrated payment experiences. The days of stand-alone payment terminals are numbered.   Retailers want to engage with their customers, and will need help in developing integrated customer experiences throughout purchase cycle, where taking payment is just one fluid step in the process. Uber changed how people pay for transportation, but they also made many other aspects of transportation frictionless.
  4. Develop rich merchant analytics.  In light of recent data breaches, banks and networks are working to quickly move away from using primary account numbers (PANs) and to replace them with tokens that are less sensitive/valuable when compromised. Apple Pay is one of the first widespread use of payment tokens, which are temporary substitutes for the consumer's primary account number. Because merchants will no longer receive a PAN, merchants will have a tough time tracking consumers across multiple purchases by linking the credit card account number used. Technology vendors can use other data to help merchants keep track of customer purchase behavior now that PANs aren't a consistent tracking option.
  5. Help competitors to Apply Pay develop their own solutions. The token standard being incorporated into Apple Pay is set by the major payment networks ( Visa , MasterCard , AmEx) and available to others to integrate with. While Apple has strong advantages due to the Touch ID technology used to authenticate a consumer and strong distribution reach, none of the payment networks, issuers or merchants involved in Apple's launch have declared sole allegiance to Apple Pay.

The payments market is massive - over $4 trillion per year is spent on credit and debit cards in the United States alone. Nobody, not even Apple, needs to capture the entire market to build a big business. Whether you're playing within the Apple Pay ecosystem or creating your own, there will be many great opportunities for technology innovators.