Apple’s payments system of the future just picked up a big new convert.
If only that would solve its payments problems of the present.
Apple Pay has won Best Buy over to its fancy pay-by-smartphone system, the companies said this week. This amounts to high drama in the world of mobile payments, since Best Buy also co-founded a rival venture with other big retailers, including Wal-Mart and Target. Now the electronics chain is embracing Apple Pay, too, “undercutting the merchant-led group,” as the Wall Street Journal puts it.
Except that the Best Buy deal solves a problem Apple Pay really doesn’t have. Of all the (significant) obstacles to its success, competition from rival mobile payments ventures has never been one of them.
I mean, Best Buy is “undercutting” something called Merchant Customer Exchange, or MCX, and its forthcoming CurrentC system--not exactly household names. And sure, Google would like you to remember that it has a mobile wallet, too; but its latest effort to compete with Apple involved purchasing something called Softcard. (All are right up there with Apple’s brand-name recognition, right?)
The big exception here is Starbucks, with 8 million (!) mobile payments transactions per week (!!)--but they're all at, well, Starbucks. The coffee chain’s mobile payments’ power is a huge advantage in any of its own expansion plans, but it doesn't help non-Starbucks merchants see the case for embracing the expense and hassle of embracing other versions of mobile payments--or convincing people to use other mobile payments systems outside of Starbucks. And woman cannot live by fake flat white and La Boulange pastries alone, much as she might want to.
So, no, competition isn't a serious obstacle for Apple Pay. But there are several others to contend with. The biggest are adoption, or how many people regularly use their phones instead of credit cards or cash to buy groceries and gas; glitchy tech; and, perhaps most seriously and unexpectedly, fraud.
Apple’s making slow progress on the first: CEO Tim Cook says that more than 700,000 stores now let you tap your iPhone at their cash registers, up from the 220,000 that accepted it when the technology debuted in October.
It’s an impressive-sounding increase, but there are major caveats. Among them: 700,000 is still a small sliver of the 9 million stores where you can buy stuff using regular old cards or cash.
The bigger problem is it’s hard to actually use Apple Pay in those 700,000 stores. Two-thirds of those who tried to buy something by tapping their iPhones reported problems at the checkout counter, according to a survey of 3,000 people published by Phoenix Marketing International last month.
Worst of all: Though Apple Pay’s technology was supposed to offer strong new protections for consumer data, it’s turned out to be extremely vulnerable to fraud--thousands of times more vulnerable than traditional credit cards are, according to some estimates. Up to 8 percent of Apple Pay transactions are fraudulent, compared to 0.1 percent on traditional cards, Bloomberg reported last month.
There’s been a lot of finger-pointing between banks and Apple over who's to blame for all that fraud. But the cause doesn’t really matter to customers. Better security was supposed to be Apple Pay’s biggest selling point, and its only significant improvement over the pretty-okay system we have now of swiping our credit cards to pay for things.
So until Apple figures out how to fulfill its promise of better fraud protection for its mobile payments customers, it’s hard to see any sort of case for its long-term success--no matter how many big-name partners it wins away from their less-euphonious rival ventures.