At some point in the future, we don’t know when, shoppers will stop carrying plastic payment cards and use their phones instead.
Last week’s announcement of Apple Pay’s UK launch brought that day a step closer.
This isn’t the first mobile payment product, so why the fuss? Partly because it’s from Apple, of course, but mainly because Apple Pay, unlike some previous attempts, actually works.
Take an iPhone 6, press your thumb to the screen, tap it against the shop’s contactless payment terminal and you’re done.
No need to unlock the phone. No need to input a passcode. No QR code. No question, it’s going to be a great user experience.
But don’t expect too much too quickly.
Most British shoppers don’t have the right device. Apple Pay only works with the iPhone 6, which accounts for just 20% of new phones sold in the UK and, of course, a much smaller proportion of the phones currently in people’s hands.
Barclays, the nation’s biggest card issuer, hasn’t agreed to participate yet, so even some iPhone 6 owners won’t be able to use Apple Pay.
As importantly, the payment industry has got itself into a pickle around how contactless transactions are processed. This risks making the experience at point of sale unnecessarily confusing for staff and shoppers and reducing uptake.
Upping the limit
Contactless transactions are currently limited to £20. This will rise to £30 in September. For the higher amounts, the payment terminals will need to go online to get the transaction authorised.
If it’s a broadband terminal this will add a slight delay, or if it’s one of the 250,000 dial-up card machines still active in the UK, a rather longer one. Less tap and go - more tap and pause and go.
Apple Pay isn’t restricted to £30. There is already provision for ‘high value’ contactless transactions to be processed, provided they are validated by a security protocol from the cardholder’s phone.
“Retailers would be well advised to suggest their suppliers get moving, and to train their staff that contactless behaves differently according to the transaction value”
However, last week’s Apple Pay publicity revealed that some payment service providers hadn’t yet made the necessary technical modifications to their systems.
Retailers would be well advised to suggest their suppliers get moving, and to train their staff that contactless behaves differently according to the transaction value.
There’s one more wrinkle that retailers need to know about. Apple Pay dynamically generates a new card number for each transaction.
This means that any service that uses card numbers to track shopper behaviour to provide CRM or loyalty/rewards is going to struggle. Card-linked offers may become a thing of the past.
Although there will be teething troubles, Apple Pay has legitimised mobile payments in the eyes of mainstream commentators and the general public.
It will spark a wave of innovation and will make life easier for those that follow, such as Samsung Pay or Zapp.
Initially, Apple Pay will work well in high volume/ low ticket value applications such as rapid transit or sandwich shops in which there is already a high propensity for contactless payments.
Elsewhere, retailers that have not yet upgraded to contactless payment terminals will need to make a judgement, based on their customer profile, about when or whether they will lose sales if they can’t accept Apple Pay.
Longer-term, service-led retailers should look to phase out card machines and move the transaction to an app sitting on the shopper’s device, for which Apple Pay also offers a very neat payment mechanism.
And it is here that the real payment revolution will begin.
- Geoffrey Barraclough, principal, Barraclough & Co