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Paying It Forward: Will Apple Pay fuel the mobile wallet game?

(page 1 of 3)

From the pages of In Business magazine.

When Microsoft shipped its first version of Windows in 1985, company CEO Bill Gates said it was “unique software designed for the serious PC user.”

Well, that likely rankled Steve Jobs and his burgeoning cult of Apple users, who had been pointing and clicking with abandon on their Macintosh computers for nearly two years before Windows flashed its first bright blue error screen.

Everyone knows the history: Windows, the Johnny-come-lately in the graphical user interface game, came to dominate the market, making Gates the richest man in the world and eventually turning Apple Inc. into an also-ran that barely clung to life before Jobs returned and transformed the company with a host of dazzling, user-friendly devices.

“I think Apple in general creates a bigger buzz. It’s kind of like comparing Google+ to Facebook.” — Kati Whitledge, founder, Be Inspired Salon

Today, Apple is a corporate giant, and with the release of its new mobile wallet Apple Pay, the shoe is decidedly on the other foot.
Apple didn’t invent the mobile wallet, but it’s kinda, sorta acting like it did — while implying that Apple Pay is the greatest invention since the wheel, sliced bread and, well, the iPod.

But it’s Apple, and Apple has clout. And that alone could transform the way consumers shop and how retailers — big-box behemoths and small businesses alike — process their payments.
Take the pulse of local retailers, and you’ll see how true that is.

While Google Wallet was released way back in 2011 and Softcard (which recently rebranded after its original name, Isis Mobile Wallet, became more synonymous with terrorism than family Christmas shopping excursions) launched in 2010, the mobile wallet concept really got a boost with Apple’s recent announcement.

Still, it remains to be seen whether the idea will take off, and local retailers seem to be of two somewhat contradictory opinions regarding this potential sea change in the way they process retail transactions: 1) so far, consumers aren’t clamoring for the opportunity to use Apple Pay and other mobile wallets and 2) with Apple’s entry into the mobile payment arena, the game may have changed for good.

“I think Apple in general creates a bigger buzz,” said Kati Whitledge, the founder of Madison’s Be Inspired Salon. “It’s kind of like comparing Google+ to Facebook. As much as people want Google+ to be something, it’s not going to replace Facebook. Until something better comes out that trumps both of them, it’s all about what creates the biggest buzz, and if we look at Apple users in general, it’s just so far beyond. It just trumps the game.”

According to Kim Fredrickson, controller at the University Book Store, Apple’s mobile wallet has likely changed public perception of such devices enough to make retailers stand up and take notice.

“This one is probably going to take off,” said Fredrickson. “I believe this is the time that we need to react and get our systems in place to be able to accept it. I never felt that way with any of the previous methods that were out there, so I do feel like this is the one that’s going to stick. … The fact is, I actually noticed it and researched it and said, ‘Oh, we’re going to have to get on this bandwagon.’”

The curious part? Neither Whitledge nor Fredrickson have so far seen a groundswell of consumer demand for Apple Pay in their Madison stores, and for a system that’s been heralded as a potential game-changer, it still faces numerous barriers to widespread acceptance.

Only have iPhones for you

First of all, you have to have an iPhone 6 to use Apple Pay. Secondly, a very small percentage of retailers — 222,000 mostly brand-name stores out of millions of total retailers nationwide — currently accept the system. Finally, there’s still some question about whether consumers want to pay with their phones at all.

“All of the studies I’ve read over the past year or so have suggested that better than 50% of the consumer population is not interested in making purchases off their cell phones,” said Dan DeBraal, a business service consultant with Wind River Financial, a Madison payment processing solutions company. “They like banking from their cell phones but not necessarily making purchases off their cell phones.

“So this concept of being able to buy something through your Android cell phone through what they call near field communications, or NFC, has been around for a number of years, but it just hasn’t really taken off. Now the argument is, ‘Well, Apple followers are really loyal and they really like to use Apple functionality, so this is the catalyst that’s going to turn the tide.’”

Whether consumers are eager to take advantage of the convenience of mobile wallets — which require users to merely pass their phones in front of any NFC-enabled register — and whether Apple’s name and reputation really can provide a tipping point for the industry remains to be seen.

But if massive data breaches like the ones that have affected Target, Home Depot, and other retailers continue to erode the confidence of consumers, mobile wallets, which boast a number of security advantages, could begin to gain further traction.

Apple Pay, for example, is activated through the iPhone 6’s Touch ID — which detects individual users’ fingerprints — and relies on a tokenization system that creates a unique, non-reusable code for each transaction. In addition, Apple Pay uses an encrypted “device account number” instead of your actual credit and debit card numbers, so your real numbers are never transmitted or shared with retailers.

But another security upgrade could have an even greater impact on the use of Apple Pay, Softcard, Google Wallet, and other mobile wallets.

All three of those systems rely on retailers having NFC-enabled registers, and to date, most small retailers are still not equipped with NFC capability.

That will likely change, however, in October 2015, when all retailers will be strongly encouraged to install point-of-sale systems that can accept safer EMV (otherwise known as chip-and-PIN) credit cards, which the credit card industry hopes will supplant older, less-secure magnetic-stripe cards.

Credit card issuers are creating some incentives to convince retailers to switch over to EMV-compliant systems, including a reduction in liability for data breaches, and that’s likely to significantly boost the viability of mobile wallets.

In other words, a big chunk of those millions of retailers that still can’t take Apple Pay, Google Wallet, and Softcard will suddenly be in the game.

“As we move to the 2015 change in chip card availability, most of these merchants are going to have to change the hardware they’re using today, and when they do change that, they will get NFC capability with that new hardware,” said DeBraal. “So the merchants are going to have that capability whether they know it or not if they’re buying some of the new hardware that we have, and then it’s just a matter of educating them.”

Payment plans

If October 2015 sounds like a long time for mobile wallet providers to wait, there’s other bad news to consider — as well as plenty to be encouraged about.
According to Mason Tikkanen, a vice president with Motus Financial, a Madison merchant services company, it’s extremely unlikely that the majority of small retailers will be switched over to EMV registers by October 2015 because they’re simply not big targets.

“From the industry’s perspective, for merchants who do adopt EMV, there is some promise to reduce or minimize breach fines,” said Tikkanen, “but the probability of a data breach happening at the small to medium-sized business level is extremely remote. Their standalone equipment, whether it’s EMV or not, the probability of it being compromised in that way is wildly remote.”


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