Nobody’s timing on when to enter an emerging market is better than Apple’s. As evidenced by their intro of Pay.
On September 9th, Apple introduced Pay, its new mobile payment service, for the iPhone 6 and Watch.
Why introduce it on September 9? Why wait this long when Android phones have had NFC capabilities since 2011?
And why did the payment networks, VISA, MasterCard and AMEX, agree to cut Apple in on their revenue stream from payments processed through their systems?
Because they both needed each other to help to drive the complete payment infrastructure upgrade about to happen in the US.
Pay works with NFC technology. Today, only about 10% of US retailers have NFC enabled terminals.
But every merchant that accepts credit cards MUST upgrade their card reader in the next year. In October 2015, any merchant that can’t accept EMV enabled (chip cards) for most card transactions will have to accept liability for any fraudulent transactions. But that mandate didn’t mean they would upgrade to NFC enabled readers as well. And many would argue that EMV chip technology is already outdated, and that mobile payments enabled by NFC are the next step in convenience and security.
The costs of infrastructure upgrades are one of the biggest points of inertia standing in the way of new payment methods like NFC. And its not just the cost of the terminals, its the cost of software as well, and the cost of training employees to use them, and publicizing to customers that you can pay with new media. And these costs are real and significant to millions of small merchant businesses. Most can’t afford to upgrade more than once every 5 - 7 years.
If you’re a merchant, you can buy an EMV compliant card reader without NFC, but now, why would you want to? The payment networks wanted to make sure that when merchants upgrade to EMV, they upgrade to NFC as well. Apple’s entering the market now, just as most merchants are deciding on options for reader upgrades is giving the payment networks a lot more leverage to make that happen. And potentially opening the mobile payments market to the infrastructure upgrade needed that PayPal and Google couldn’t deliver. I’m sure that Apple recognized the tailwind that Pay would get by drafting onto the EMV upgrade mandate.
I’d also speculate that this upgrade cycle is the reason that Apple is launching Pay in the US first. While Europe is far ahead on EMV infrastructure adoption, their merchants don’t have the same common driver and opportunity for adopting NFC.
So if you’re looking for an inflection point for Pay, it’ll be late 2015 / early 2016. By that time, Apple will have sold millions of iPhone 6’s and Watches, all capable of using Pay. And its likely that those Pay enabled devices will have a much fuller merchant acceptance network in place in the US.