By Rob Garf, Demandware
While the introduction of Apple Pay, as part of the newest iPhone launch, was lauded as technical nirvana by some, retail veterans know the industry has been testing Near Field Communication (NFC) and other advanced payment methods for more than a decade. Sure, Apple will benefit from recent retailer investments in NFC-equipped payment terminals from Hypercom, Ingenico and Verifone, but adoption of these terminals has been slow. In fact, NFC-enabled point-of-sale (POS) systems are in only a fraction of the nearly 9 million tills within the US.
So what does this mean? The iPhone’s mobile payment capabilities will change retail as we know it…eventually.
Advertisement
The tech titan has an incredible ability to transform industries — just look what they did with the music industry — but this capability is more about driving retail forward over time rather than turning it on its side overnight.
Here’s how I think they’ll do it.
1. Convenience
Smartphones have become omnipresent throughout the entire consumer buying journey. Time-starved consumers increasingly rely on these devices for researching and browsing, yet purchasing was limited or difficult due to the small form-factor. Now that the iPhone is equipped with mobile payment capabilities, it increases the utilization, usability and relevance — especially within the physical store — which leads to higher satisfaction and loyalty.
It all boils down to convenience. Apple Pay’s combination of Touch ID and NFC capabilities not only eliminates the need for consumers to open their physical wallet and swipe a credit card, it also removes the need for payment details, usernames and passwords to be manually entered at the POS. Retailers that have embraced advanced payment methods (like early adopters of chip-and-PIN, biometrics or NFC capabilities in Android devices) have been known to accelerate the checkout process, potentially leading to higher store productivity and increased profits.
2. Customer Intelligence
Apple, as they’ve done with Passbook and iTunes, is continuing to wedge itself between the buyer and the seller. As a pervasive intermediary, they will increasingly put pressure on financial institutions for the toll consumers pay as part of transactions. In fact, sources tell me that Apple negotiated card-present rates, something that has historically been a barrier for other mobile payment methods. And from a branding perspective, credit card companies will take a back seat because consumers will no longer pull out plastic from their wallet; think about the eyeballs these firms will lose.
The fact that Apple has built toll booths on all the vital on and off ramps of the financial roadways also means that they have access to consumer intelligence. As consumers leave digital footprints with Apple Pay, Apple has the opportunity glean significant insights regarding consumer behavior, preferences and profiles. This, in turn, could open new lines of businesses for them to market hardware (think POS) and analytical services (think data bureau) to retail enterprises.
3. Retailer Readiness
Now that NFC is built right into the iPhone, we can expect consumer adoption to grow. This means retailers must be prepared or risk losing the sale. To take full advantage of the opportunity, retailers will need to upgrade payment terminals. This is a massive investment, especially for retailers working on razor-thin margins. However, a hardware refresh cycle already in play is working in Apple’s favor; retailers are working toward an October 2015 deadline set by the payment card companies to enable chip-and-PIN payment acceptance vs. swipe-and-sign.
I question whether NFC will be the long-term de facto standard for payments, especially with emerging technologies from the likes of Merchant Customer Exchange (MCX), which doesn’t require costly and disruptive hardware investments. Apple’s move, however, should prompt the requisite store associate training. Any time there is change at the cash wrap process or with the technology, education is required to ensure efficient checkout. The well-publicized Apple Pay capability, and the ensuing scramble by retailers with the right hardware to utilize it, should motivate every retailer to train store associates in leveraging new check-out technology, effectively paving the way for future innovations to quickly take hold.
Net-Net
Once again, Apple is pulling an industry forward. The buzz alone will force retailers — and consumers — to take notice. I’m not willing to bet against them and the mousetrap they are building, but Apple Pay today is only a fraction of the potential for the future.
As VP of Industry Strategy for Demandware, Rob Garf is no stranger to the industry and the challenges retailers face. As the former retail strategy leader for IBM Global Business Services and vice president of Retail Strategies Service at AMR Research, Rob’s been on all sides of the business. He currently guides Demandware’s retail and product strategy.
