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 Since then, the company has aggressively courted retailers - and
claimed significant success. "We've spoken to all of the top 100
merchants in the U.S., and about half will accept Apple Pay this
year, with many more the following year," a company spokesperson
recently told Reuters.
But interviews with analysts, merchants and others suggest that
Apple's forecast may be too optimistic and that many retailers
remain skeptical about the payment system.
The service is one of Apple's biggest bets, a chance to tie
customers more tightly to its phones and its new smart watch, as
well as to take a tiny bite from every retail transaction.
To assess Apple's progress, Reuters worked from the National Retail
Federation's list of the top 100 U.S. retailers, surveying the 98
that had brick-and-mortar outlets (two of the top 100 sell only
online). Eighty-five supplied detailed responses, and 11 others
supplied information only about whether or not they accept Apple
Pay. Two did not respond.
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.
The top reasons retailers cited for not accepting Apple Pay were
insufficient customer demand, a lack of access to data generated in
Apple Pay transactions and the cost of technology to facilitate the
payments. Some merchants said they were holding out because they
plan to participate in a new mobile payment system to be launched by
a coalition of retailers later this year.
A SMALL BUT GROWING MARKET
Reliable statistics on mobile wallet payments are difficult to
obtain. Neither the companies offering payment systems nor credit
card issuers will disclose detailed data about usage. But analysts
agree that they are used for only a tiny percentage of U.S. retail
transactions.
An online survey conducted by Verifone <PAY.N> and Wakefield
Research released in January 2015 found that mobile wallets
accounted for about 4 percent of the overall payments market for
in-store retail transactions in the U.S.
How that market is divided up among the major players is not
entirely clear. An ITG Investment Research study conducted in
November, soon after Apple Pay was launched, found that the service
accounted for 1 percent of digital payment dollars, while Google
Wallet accounted for 4 percent.
Since then, analysts agree, Apple Pay's market share has grown
dramatically. "In the last six months or so there has been more
acceptance of Apple Pay," said Steve Weinstein, senior internet
analyst for ITG. "Google Wallet has kind of stalled out."
In January, Apple's Cook, citing internal data, said Apple Pay
accounted for two out of three dollars spent in "contactless
payments," but the company did not provide data to back up those
numbers.
Still, it is clear Apple Pay has made considerable progress in
signing up vendors, with more than 700,000 sites as of March 9, the
last time Apple updated its numbers, including self-service
terminals such as vending machines, laundromats and parking meters.
Interviews with retailers suggest that the company has relied on
aggressive marketing to recruit participants. "They have been
pushing hard and it's been that way for months," said the
representative of one large retailer that has no plans to accept
Apple Pay. "They have called and tried to persuade us even after we
communicated our decision to them." The company hasn't adopted Apple
Pay, he said, because not even a "small percentage" of its customers
have asked for it.
SPEED, CONVENIENCE AND SECURITY
Many companies that accept Apple Pay report that they and their
customers are happy with it. Whole Foods <WFM.O> spokesman Michael
Silverman said that Apple Pay transactions accounted for 2 percent
of its sales dollars as of March and that it expects use to rise.
"Our shoppers are really enjoying the speed, convenience and
security of Apple Pay," he said.
But for other retailers and consumers, Apple has yet to answer the
question "what is in it for us if we use Apple Pay?" said Alberto
Jimenez, program director for mobile payments at IBM, which provides
technology to mobile wallet makers and retailers. Jimenez would not
say whether Apple is among their customers.
The program doesn't offer loyalty rewards to customers, as companies
such as Starbucks do with their mobile applications, nor does it
provide customer information to retailers about Apple Pay users.
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For 28 of the retailers surveyed by Reuters, lack of access to data
about customers and their buying habits is a key reason they don't
accept Apple Pay. "One of the biggest concerns is data control,"
said Mario De Armas, senior director, international payments at the
world's largest retailer, Wal-Mart Stores Inc.
When a credit card is swiped through a terminal, the retailer gets
the name and card number, which when combined with publicly
available demographic data like address, phone and email, helps
retail chains send well-targeted promotions to customers.
Wal-Mart and 18 of the other top retailers are part of a coalition
challenging Apple Pay with a mobile wallet called CurrentC, which is
scheduled to launch in mid-2015.
Retailers participating in CurrentC won't be allowed to accept any
other mobile wallet until 2016, according to a senior official at
MCX, the company launching CurrentC. For that reason alone, 19 of
the NRF's top 100 retailers will not be able to accept Apple Pay
before the end of the year, although three of them said they plan to
accept Apple Pay by early 2016.
Another reason cited for not accepting Apple Pay by retailers
surveyed by Reuters was the cost of terminals and computer upgrades
required to accept a mobile wallet.
"What is the return on investment?" asked Maureen Elworthy, director
of treasury at Ahold USA, which runs supermarket chains like
Stop&Shop, during a panel discussing Apple Pay at an industry
conference. "The [return] is negative," she said.
She told Reuters that Ahold USA does not plan to accept any wallets
because they see it as an investment cost without immediate returns.
The cost to merchants of accepting a mobile wallet is highly
variable depending on what technology they already have in place.
Retailers face an October deadline to upgrade their credit card
terminals to accept cards with microchips, and the new terminals
will typically also support contactless payments such as Apple Pay.
But mobile payments also require back-end systems that can be
costly, especially for a large retail chain accepting multiple types
of mobile payment systems, said Rick Dakin, chief executive of
Coalfire, a security systems and IT infrastructure firm.
Apple declined to comment on the cost to retailers of accepting
Apple Pay but referred Reuters to Ian Drysdale, Executive
Vice-President at payment processor Elavon, which works with Apple.
Drysdale downplayed the cost issue.
"As long as the retailer is upgrading to the new payment terminals,
which are enabled with contactless payment technology, there is very
little additional cost to accept Apple Pay," he said.
Ultimately the success of Apple Pay may rest with iPhone users like
Scott Braeckel, an iPhone 6 owner who has used Apple Pay - but only
once.
Braeckel said he liked the Apple Pay experience, but he generally
pays with a credit card, even at places like McDonald's, which
accepts the mobile wallet.
A survey released in March by shopper insight firm InfoScout and
PYMNTS.com of more than 1,000 iPhone6 users found that while 15
percent of them had tried the payment system, only 6 percent said
they continued to use it.
"It was an interesting curiosity but hasn't moved into daily use for
me because frankly, I don't really shop at places it's taken,"
Braeckel said. "The places I mostly shop, which are my grocery store
and pharmacy, don't accept it."
(Reporting by Nandita Bose in Chicago and San Francisco, Editing by
Peter Henderson and Sue Horton)
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