Apple Pay, Now That We’ve Sobered Up

Just about everyone seemed absolutely giddy over Tim Cook’s breathless announcement of how Apple is revolutionizing payments. I’m hoping now that maybe, with a couple of weeks’ of distance and with at least some of you experiencing the buggy iOS8 operating system, I can make some sobering comments without being treated like the skunk at the picnic.

I should begin with some disclosures. I’m a huge Apple fan. I salivate over everything they make, and have bought a ridiculous number of computers, iPads, iPhones and more over the last few years. I’ve been saying since the mid 2000s that mobile is definitely the future of payments. My mantra starting in 2008 was “It’s in your hand, it’s in the cloud, and it’s in the data.”

I practice what I preach and pay by mobile whenever I can with my Starbucks and LevelUp apps. Finally, I have thought for a while that if anyone was going to nail mobile payments in the U.S., it would be Apple with its integrated hardware and software and massive number of cards on file. So I’ve not only drunk the Kool-Aid, I’ve been making some of it all these years.

So let me just say it. Tim Cook’s presentation was mind-bogglingly ridiculous. It was just nuts. Everyone in payments, including those of you saying that this is like the Second Coming, knows it.

The problem Apple tells us it’s solving is the horrendously time consuming, arduous task of paying with these antiquated pieces of plastic. You ladies have to find that darn thing in the midst of all that stuff in your bottomless pocketbooks. How, women, have you ever managed to get by? That speech should convince any doubters that Silicon Valley companies either need more women, or maybe they just need to get rid of the free food so that employees have to pay for lunch like the rest of us.

Of course, we all know what the real obstacle to mobile payments has been in the U.S.. It’s what many of us have been talking about. Paying with a card is so fast and convenient thatit is hard to beat. It takes a few seconds. Everyone knows how to do it. All the cashiers know how to take it. It is simple. Yes, I know, it is infuriating that it works so well with a piece of plastic and a mag stripe, but then cash works pretty well, too.

The problem in getting mobile payments off the ground isn’t getting a device that you simply tap at an NFC terminal. We’ve had those for a decade now. We’ve had contactless cards—no one wants to use them. We’ve had contactless fobs—no one wants to use them. We’ve even had stickers on the back of the phone that are just as fast as Apple Pay—no one wants to use them.

I don’t want to dismiss the significant advance in security Apple Pay makes—that part is awesome, important, and I’m going to come back to it. Is that going to ignite mobile payments in the U.S.? I’m not so sure.

Sobered up? Let’s talk rationally about the prospects that Apple Pay is going to ignite.

I’m not the first to say it, of course, but the obstacle out of the box is that iPhone 6 subscribers aren’t going to be able to pay at very many places. The 220,000 figure that’s tossed around sounds high to uneducated consumers but those of you in payments land know that it is only about 2.5 percent of merchant locations. Walk around main street in your town and count up the places you can use contactless payments. I did in my town of about 20,000. I’m pretty sure the answer is one.

It’s worse than that because I think the media has started giving people the impression they could pay everywhere. My guess is that consumers will be incredibly disappointed at how few places they can pay. Will they take their anger out on Apple? Or merchants? Or maybe the large banks that are telling them how wonderful all this is?

Objectively, there’s no reason why Apple Pay is going to be any more successful than all of the other contactless initiatives. Remember, in the UK most merchants now have NFC terminals and most cardholders have an NFC card. Hardly anyone uses them even though tapping a card is a lot more convenient than doing the dreadful dip and pin. And of course there have been millions of contactless cards distributed in the U.S.. Is the phone without anything more really going to be that different?

I’m not going to predict that Apple Pay will fizzle. In fact, if I had to put money on it I would bet that in a few years’ time they will be pretty successful. But let me explain what I think will be required for that to happen.

First, the Apple Magic is really going to have to drive things. Merchants are going to have to believe that Apple Pay is going to be so wanted by consumers that merchants will not only accelerate their installation of EMV terminals but will turn on NFC (which most merchants don’t do even then they have NFC). The Apple Magic must break the logjam. And consumers are going to have to fall in love with Apple Pay from the get go so that merchants get some proof that consumers, who have been fickle over contactless and mobile payments so far, really want to pay this way. The first few months are critical and we should be watching to see whether the fast-food merchants, that have lots of repeat customers, are seeing the kind of action that Starbucks has seen.

Second, the killer app is going to have to appear. And this is where Apple can really shine. It provides a great platform. All it needs is for one developer, someone in the world, to come up with an application that relies on Apple Pay that lots of people fall in love with. It is impossible to predict what that killer app will be. Of course, if lots of great apps that use Apply Pay at the physical point of sale appear that will help a lot too.

Third, Apple is going to have to move from NFC to the cloud. Part of me assumed that the whole NFC stuff was just a smokescreen and Apple is really going after cloud-based payments integrated with beacons. But that whole pocketbook thing was quite a charade then. By developing an in-store application that allows people to pay Apple could make all of the Apple 5 devices with biometrics but without an NFC chip able to use Apple Pay and perhaps it could provide a more interesting approach for some merchants.

And again, I don’t want to dismiss the security feature. Multi-factor authentication, based on the device, and the cloud, and with tokens, is the way to go. It sure beats chip and pin cards. Consumers should like this. But high tech companies have a bad rap these days when it comes to privacy and security. And there were those pictures pulled from iCloud. I’m not convinced this is the killer app for consumers or that they will care that much.

If you want to track the likely success of Apple Pay I think the leading indicators are (1) a significant increase in the adoption of NFC terminals at merchants in the next year; (2) the number and quality of Apple Pay applications being introduced in the next year and their uptake by consumers; and (3) movements by Apple to do deploy Apple Pay, through the cloud, on more devices.

Ok, back to sober reality. I’ve been using the iOS8 for three days now and it reminds me of the days of dealing with buggy Microsoft software. Maybe it will get better quickly. Some people don’t seem all that enthralled with the iPhone 6s and having seen one I’m sticking with my more elegant looking iPhone 5s. For me at least some of the magic has worn off of Apple in the last few weeks. If there’s a crescendo of complaints about the new operating system I would discount the likelihood that Apple Pay will ignite mobile payments quickly.

Now, if Apple Pay does become a humongous success there’s going to be a lot of upheaval in payments. More on that after I figure why I can’t answer calls anymore on my iPhone that is now running iOS8.