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Why it’s not a bad idea for Apple to slowly evolve in the payments industry

Why it’s not a bad idea for Apple to slowly evolve in the payments industry

Edward van Dooren

Consultant Strategy and Analyses

23 February 2016

Why it’s not a bad idea for Apple to slowly evolve in the payments industry


Although Apple Pay was already introduced in September 2014, the mass adoption of this mobile payment technology has been lagging. However, Apple continued investing in R&D to expand the technology, expanding its partners network and introducing new services such as payments for parking. Apple is entering this market very gradually, which is a different strategy than their earlier innovative products. Still there are several reasons to assume that this has actually been a successful strategy.

Paying with placing your phone at the terminal and your finger at the button on your iPhone. That is how simple Apple Pay works for consumers. The credit card industry was happy to embrace the new solution as well, because Apple partnered with the banks that issued credit cards.

Not yet the big game changer

The introduction came with a big bang, 2015 was going to be ‘the Year of Apple Pay’ and the possibilities seemed endless, but almost sixteen months later, Apple Pay is not yet the game changer in the U.S. that a lot of people expected it to be. According to Pymnts.com only 15 per cent of the iPhone 6 users has tried Apple Pay, with an increase from 9 per cent in November 2014. The reason for the lack of mass adoption is that people forgot to use it (30 percent) or didn’t know that the store they were in offered it (30 percent). Another hurdle is that not a lot merchants offer the option to pay with Apple Pay in the stores, which means that only 62 per cent of all Apple Pay purchases were made in-store and 38 per cent comes from in-app purchases, according to a survey from market research group Phoenix Marketing International.

“Changing habits takes time, and Apple has plenty of that with these users”, writes Vivek Wadhwa on Singularityhub. During the path to mass adoption Apple is perfectly able to keep improving the technology and service. Apple has increased spending in research and development up by 90 per cent in just the last two years. “The iPhone isn’t just the device, it has become the hub that powers all the innovations of Apple”, writes Ophir Gottlieb on See IT Market.

P2P-payments to attract new users

Apple is keen to develop more functionalities for the iPhone and Apple Pay. Apple for instance wants to let you make payments through texts, phone calls and e-mails. “It shows that Apple is paying attention to a key trend in the technology industry: the convergence of messaging and payments”, writes Ian Kar on QZ. “Thus far it’s proven difficult for companies to make money through peer-to-peer payment services due to low margins. However, that may not matter to Apple.” Why is Apple developing P2P-payments if it’s not meant to make a lot more profit? P2P-paymenrs are especially popular with the age group from 18 to 34 year. Kar: “The goal will be to get these young people to use Apple Pay in stores.

This means that Apple is using multiple strategies to expand the potential user groups of Apple Pay to pave the way for mass adoption. The company is achieving it with new services and with strategic partnerships to expand the reach. One example of new services is the usage of Apple Pay to pay for parking in the United Kingdom, but also more banks keep incorporating it, in even more countries. Apple has recently announced the partnership with China UnionPay to bring Apple Pay to China.

The gold at the end of the rainbow

Apple is taking their time to grow into a mature player in the contactless payment sector, but with a clear goal in mind. Wadhwa on Singularityhub: “Apple understands that the prize in play for global mobile payments is a larger market than that for phones, music and computers combined. According to The Nilson Report the total of consumer and commercial purchases at merchants and cash obtained from credit and debit cards was 20,567 trillion dollars in 2013. The value to Apple isn’t just the transaction fees: it is the massive treasure trove of user data. So yes, Apple is going to continue to improve on Apple Pay for quite a while.”