For all the hype about Apple Pay, I for one have been pretty disappointed in the adoption curve thus far. To give you an idea, the most recent data shows that, despite Apple having 800M+ iTunes accounts with credit cards on file, the number of eligible Apple Pay users who have tried the service dropped from 15% to 13% during the period from March to June 2015. This suggests that as more people buy the iPhone 6, a lower percentage of them are actually using Apple Pay. But why?
The fact is that a third of iPhone 6 users cite satisfaction with their current payment methods as the primary reason they eschew Apple Pay, and another third simply don’t understand how the software works. A sizable 19% are concerned with security as well. Compounding the problem is the fact that Apple Pay isn’t yet widely accepted by merchants. Although hitting the one million retail location mark over the summer, most of these Apple Pay-compatible locations represent only a handful of major US retailers, with another contingent of major retailers trying to roll out a competing mobile wallet platform called CurrentC.
That in mind, an interesting counter-point is that a whopping 80% of Apple Watch users HAVE tried Apple Pay, and 96% of Watch users want to use it at more locations, with 62% saying they’d visit supporting retailers more often.
So, what’s wrong with Apple Pay’s value or operating model that is ultimately slowing adoption? I’ll consider a couple of hypotheses here:
- Nothing’s really wrong – these things take time. A reasonable explanation is that people just haven’t caught on yet and therefore usage and adoption numbers are low. It’s compelling in the sense that we could just be out of the iPhone 6 “early adopter” phase, and the later adopters who are now buying 6’s are accepting the hardware technology, but have yet to explore the new software functionalities offered.
- Merchants don’t have enough critical mass. The network effect of enabling and creating value for users could be suffering in the sense that many merchants either aren’t capable of, or unwilling to, accept Apple Pay. Merchants don’t capture value from Apple Pay, at least directly. An Apple Pay transaction is essentially the same as a credit card swipe for them, albeit in some cases at a very minimal added installation cost. Merchants are relying on either a) increased store traffic if they install or b) positioned differently, decreased store traffic if they don’t Perhaps neither reason is currently providing enough impetus, however this could be changing – of new payment terminals currently being shipped, 75% are equipped with NFC (near-field communication, the underlying technology enabling Apple Pay), indicating there could be more prevalence in the future.
- Consumers don’t see enough value created. I reiterate the statistics mentioned above – a third of users are satisfied enough with their current payment method and see no reason to change, and another third simply don’t know how it works (and judging by their choices, don’t care enough to find out). The realistic ability to leave a physical wallet and credit card at home is undoubtedly a LONG way off, so in that sense it’s hard to justify using Apple Pay for many consumers. Furthermore, a cursory glance at blog reviews of Apple Pay shows that the consumer experience is sub-par. Many “power-users” say the feature only works for them 70-80% of the time, and when it doesn’t the store cashier has no idea how to fix the problem.
I think the Apple Watch figures actually support this hypothesis, as paying with one’s watch rather than cell phone could plausibly increase value enough to change the adoption curve significantly. (Alternatively, the Watch is simply still in early adopter phase with users more willing to try new features.) However, Apple isn’t oblivious to these possibilities – and in fact is actively combating them. In a somewhat uncharacteristic move, Apple chose open standards and APIs for Apple Pay – potentially allowing companies like Venmo to innovate with the technology and create direct network effects among users.
Ultimately, I think consumers will force merchants to adopt Apple Pay or be left behind, though I don’t have a sense for how long that could take. However, I don’t think it will happen from B2C Apple Pay on iPhone 6. Instead, we may actually see adoption driven by the Apple Watch and C2C transactions from partners like Venmo.
What do you think? Agree/disagree with these hypotheses? Are there other possible explanations?