What Apple Pay Means for Retailers

Unless you've been living under a rock, you know by now that Apple launched a bevy of new products and services yesterday in a star-studded (can you say Bono?) event in Cupertino, Calif.

Of all the the major announcements — the launch of the iPhone 6, the iPhone 6 Plus, the Apple Watch and Apple Pay — the latter is arguably the most important news for retailers.

Apple Pay, a mobile payment service for online and store-based retailers, is Apple's own version of a mobile wallet. Launching this October, Apple Pay will be embedded into the iPhone 6 and iPhone 6 Plus (which will become available on Sept. 17) and in the Apple Watch (available early next year).

According to an article in New York Magazine published yesterday, the technology works as follows: To make a purchase, users tap their iPhone (or Apple Watch) against a touchless payment terminal while holding their thumbs over the Touch ID sensor, and a near-field communication (NFC) chip communicates with the terminal using a one-time security code generated for the specific transaction.

Many large retail chains already have NFC-enabled POS terminals, so Apple's system will work at places like McDonald's, Target and Whole Foods without requiring those stores to install new hardware at each cash register. Payment information will be stored on a chip Apple is calling the Secure Element, and won't be visible to the merchant. Online retailers will also be able to use Apple Pay to facilitate credit card transactions within their iOS apps.

Mobile payment experts weighed in on the news yesterday.

Dov Cohn, general manager of mobile solutions for email marketing firm Bronto, said Apple Pay will become as prolific as PayPal, and just as addictive.

"Apple Pay has the opportunity to become the one-click payment method of mobile commerce. Look out Amazon," Cohn said. "[The] Apple announcement is the kick in the pants that mobile commerce needed. Apple Pay, integrated into the iPhone and available to any mobile app, directly answers two of the key shopping concerns of digital consumers — ease of use and security — and should get consumers to open their mobile wallet."

Ralf Gladis, CEO of payment services provider Computop, however, was expecting a more innovative solution from Apple.

"To be honest, I expected a more innovative mobile payment system, simply because Apple has a track record of doing innovation better than anyone else," Gladis said in an email sent to ROI. "On the other hand, Apple has a global reach and it’s a clever move to join a global standard like NFC and take sides with global card organizations like Visa, MasterCard and American Express. Otherwise, it would be an endless fight to convince and connect merchants to Apple Pay."

Gladis added that by using NFC, "Apple will be compatible with millions of POS terminals worldwide, giving its users the positive customer experience they need to be able to use their iPhones and Apple Watch everywhere they go. Not every POS terminal is NFC compatible, yet, but many already are, and NFC will be mandatory for new POS terminals for instance in Europe, soon."

Henry Helgeson, CEO of payment processing solutions provider Merchant Warehouse, said in a statement that the Apple Pay news brings the concept of mobile wallets to the forefront, which is a good thing. However, Helgeson warned that focusing just on the NFC technology Apple has invested in may not be wise.

“With the launch of Apple Pay, businesses everywhere will begin asking if now is the time to invest in upgrading to a payment system that accepts NFC," he said. "Merchant Warehouse certainly thinks this is a good question to ask, but we encourage businesses not to stop there. When considering a payment technology that focuses on the future of payments, we suggest keeping options open. Only invest in hardware that's flexible to adapt with the future of payments — whether that’s NFC, beacons, EMV or other technologies.”

Finally, in a well-written blog post published yesterday by Custora, a predictive analytics platform provider, the author laid out what Apple Pay means for retailers.

The fact that Apple Pay lets consumers pay directly with their phone "offers convenience, speed and security," the blog post noted. "The Apple Touch ID mechanism is a clever way to bypass Amazon’s one-click patent … and can make those terrible payment forms all but disappear from online retailers’ sites."

Custora also said that retailers now have more choices when it comes to accepting payments. "Between PayPal, Amazon Payments and Apple Pay, online retailers have a choice," the blog post said. "Competition is good for retailers (and consumers), and might lead to decreased fees and improved profit margins for online retailers."

In addition, the blog said that over time "Apple might offer exclusive deals and promotions with retailers, which will make Apple Pay even more attractive to consumers. Apple said it's not keeping any transaction data in its own database — it all goes directly to the retailer. It will be interesting to see if that changes in the future."