The vast majority of the discussion surrounding Apple Pay has focused on brick-and-mortar commerce. This may be natural given that Apple’s merchant launch partners were Macy’s, McDonald’s, Walgreens, Staples, Disney, and several other major physical retailers. But while this new easy and secure payment method could very well disrupt the offline purchase experience, its biggest impact could ultimately end up being in-app and on the mobile Web.
I have had dozens of conversations to this effect with payment industry insiders, mobile entrepreneurs, and investors in recent weeks. There are three major factors that support this argument. The first is that consumers making in-app and online mobile purchases, currently experience far more friction than they do offline. It can be maddening to enter payment, billing, and shipping details into a purchase form, all using a cramped mobile touch screen keyboard. Apple Pay requires consumers to enter payment information only once, and makes it as simple as scanning the card using an iPhone or iPad camera. Thereafter, payments require only a long press on the TouchID sensor.
As Andreessen Horowitz partner and noted mobile analyst Benedict Evans wrote recently:
If you can acquire a credit card and address with just one tap then a major cause of drop-off and cart abandonment goes away, and that in turn alters the calculus around whether you make an app or a website: you have to get people to install the app (which is a cause of drop-off), but after that everything is seamless. … The immediate effect of this is to reinforce the position of iOS as the platform where most merchants see the majority of their value, and hence of course drive them to continue to make iOS apps and make them first, which in turn drives iOS device sales, especially to people who buy things, a virtuous circle that Apple is already benefiting from at the expense of Android.
Other solutions to this problem exist. Venmo Touch and the newly launched PayPal and Braintree OneTouch platforms store payment information and make checkout rather painless. But for sheer ubiquity, and awareness among both consumers and developers, Apple Pay could quickly surpass these existing options. The photo-based card input method is also available elsewhere, specifically via an API from Jumio as well as within the Zappos mobile app.
The second major factor that could tip the Apple Pay impact scale toward mobile is the shift in consumer buying behavior. Today, only a small fraction of the world’s commerce happens online and via mobile. But that percentage is growing at exponential rates and is unlikely to slow down anytime soon. Whether it’s shopping for groceries and household items via Instacart and Postmates, ordering transportation via Uber, or buying literally anything with a barcode via Amazon, it’s easy to see how the future of commerce is quickly becoming mobile-dominated.
As this transition occurs, the platform with the most payment credentials stored and with the most frictionless buying experience stands to win the day. It’s tough to argue, given the current mobile payments landscape, that Apple Pay won’t be that winner. It’s the only payment experience that I’ve routinely heard described as “magical” and “infectious,” it’s already the most well known, it’s far and away the most secure, and early adoption has been rabid in the way only Apple can drive.
Finally, and perhaps most immediately, there are no hardware or infrastructure requirements for accepting Apple Pay payments as a mobile app developer. On the other hand, physical merchants need to offer NFC payment terminals in order to communicate with the newest Apple mobile devices, a technology that’s far from ubiquitous in the US today. While I’ve written before that the timing of Apple Pay’s launch was savvy in terms of other major shifts in the market that could accelerate the adoption of new hardware, it won’t happen overnight. Also, many major physical retailers have elected not to support Apple Pay or NFC in the short term while they work to launch a (doomed to fail) competitor. Again, none of these barriers exist in mobile. Any developer who wishes to support Apple Pay in their app can do so likely within a matter of hours.
Apple seems to know this fact as well as anyone and has been taking steps to promote in-app usage while the brick-and-mortar rollout progresses. For example, according to a recent Digiday report, the company is working to integrate Apple Pay into its iAd mobile ad network and will offer tap-to-buy ads in the near future.
Apple also launched a new featured section in its App Store highlighting apps that offer Apple Pay support. Included in this section today are nearly two dozen apps, including those from Target, Uber, Lyft, OpenTable, HotelTonight, Groupon, Fancy, Instacart, Threadflip, and Staples, not to mention the Apple Store and App Store themselves. That’s a pretty impressive list, including a number of national brands and several “daily habit”-type products.
While mobile analysts like to tout Android’s market share advantages, countless studies have proven that iOS users are far more valuable and higher-spending consumers – 4X more, according to a July 2014 report. With this already the case, and with Apple Pay making shopping via an iOS device easier than ever, it’s not difficult to imagine how this gap widens.
There are a few factors holding back this prediction. The first is that only a fraction of the iOS-using Americans own an iPhone 6 or 6 Plus, or the new iPad Air 2 or iPad Mini 3 required to use Apple Pay. It hasn’t helped that the iPhone continues to be supply constrained. But, with the average iPhone user upgrading roughly ever two years, it won’t be long before Apple has hundreds of millions of potential Apple Pay users around the globe.
Secondly, Apple Pay is only supported in the US today, meaning that international customers can’t adopt the technology even if they wanted to. Apple will need to negotiate similar banking and card processor deals outside of the US as it has at home. Assuming adoption goes well domestically, these deals should be far easier to come by abroad, but they still need to get done.
Given all of the above, it seems fair to conclude that Apple Pay stands to be just as transformative, if not more so, to mobile commerce as it will be for the in-store experience. It’s been less than two weeks since Apple Pay launched, and less than two months since Tim Cook first debuted the technology on stage during the company’s September keynote. But in this short time, Apple Pay has already become the most used contactless payment system ever while forcing consumers, merchants, and the payment industry to rethink what the future of commerce will look like. The scary yet exciting thing is that the platform is just getting started.