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Apple Pay Mobile Payments Cashless Payment

Apple Pay, mobile payments and our cashless future: How brands can capitalise on contactless

By Catherine Turner

July 23, 2015 | 8 min read

As Apple Pay launches in the UK, with the potential to change the landscape for retailers, Catherine Turner explores how forward-thinking payment innovation is changing shopping as we know it, and how brands can capitalise on contactless.

Nine months after Apple Pay launched in the US, the tech giant is rolling out its digital wallet internationally, beginning this month in the UK.

Apple Pay launched earlier in July, with some 250,000 locations including Marks & Spencer, Waitrose and Boots stores accepting it. Analysts predict faster adoption rate among merchants here, for it and its rivals (including Barclaycard bPay and the mooted Android Pay) because of the UK’s more mature in-store contactless ecosystem.

In fact, the UK is regarded as the contactless capital of the world, especially since Transport for London (TfL) introduced contactless payment across its network in September last year.

“As a country, both from consumer and retail perspectives, we have adopted both chip and pin and contactless quickly,” says Spencer Izard, head of Europe at IDC Retail Insights. In a recent IDC consumer survey a third of UK shoppers used contactless to pay in the last year alone.

According to the UK Cards Association, contactless payments rose 331 per cent year-on-year in 2014, with the public making 319m contactless transactions with a total value of £2.32bn using the technology.

Apple’s technology is not new; there are several smartphone apps and services including Zapp and Moneto that allow mobile payments on compatible point-of-sale readers. However, industry watchers believe the hype surrounding Apple Pay, along with others’ high-profile marketing campaigns, ease of use and a willingness to trust such services, will drive further adoption amongst consumers and retailers.

Denmark: the world’s first cashless society?

In May this year Denmark announced its intention to allow petrol stations, clothing stores and restaurants the option to stop taking cash payments. Its central bank has already stopped printing notes and minting coins.

The measure, which could be implemented as early as January 2016, aims to make it easier to do business in the country and boost economic growth – cash payments, says finance minister Bjarne Corydon, “involve considerable administrative and financial burdens”. Transaction costs, as well as crime, go down when physical currency is eliminated, he says. Grocery stores, dentists, doctors, post offices, hospitals and nursing homes, however, will be excluded from the proposed new rules.

Almost a third of the country’s population already use an official Danske Bank MobilePay app, linking smartphones to other users’ devices or sensors at the till, allowing users to confirm payments with a swipe of the screen.

Thomas Husson, Forrester Research’s vice-president and principal analyst, says: “Innovation in the mobile payments space is not about payments but the ability to add services before, during and after transaction. Payments fade in the background and the app becomes an engagement platform.”

He predicts adoption in the UK to be faster, not only because of more mature near-field communications (NFC) and contactless ecosystems. There is also no consortium of retailers such as MCX with CurrentC, led by Walmart, launching a competing offering, while the inclusion of TfL as a partner is a way to “raise awareness and accelerate daily usage”.

Ron Kalifa, Worldpay’s deputy chairman, says: “As with any new technology, it can take the actions of a major player to force the tipping point. TfL’s decision to enable contactless payments across its network played a significant role in bringing the technology into the mainstream. Supermarkets have also proven effective standard bearers for ‘tap and go’, accounting for 44 per cent of all contactless transactions.”

Further, Apple will benefit from a larger installed base of compatible devices and from the awareness created by the media buzz from the US launch.

Though the most high profile of the new breed of digital wallets, Apple is far from alone in wanting to own this space. Barclays this month launched the next phase of its own contactless system – bPay – backed by a multimillion pound marketing campaign including a takeover of TfL’s website.

Consisting of a digital wallet linked to one of three devices – a wristband, fob or sticker – bPay can be used for transactions up to £20, rising to £30 when the contactless payment limit is increased in September.

As well as shoppers and commuters, the devices are targeted particularly at fitness fans to allow them to leave their cards and cash at home, and parents wanting to give their kids holiday spending money. For the first time, consumers will also be able to buy a Barclaycard product on the high street, with select Snow+Rock outlets selling devices from August.

At launch, Mike Saunders, Barclaycard’s managing director of digital consumer payments, said: “We’re in the midst of a sweeping change in the way we pay, with cash-dominated transactions being replaced by ‘touch and go’ contactless technology that has made it easier, safer and faster to make low-value payments.”

It may well have one early advantage over Apple Pay – that of trust. According to data from Forrester, 27 per cent of UK online consumers owning an iPhone would trust Apple to provide a mobile digital wallet, but they are still more likely to trust PayPal (43 per cent), a bank (41 per cent), credit card network (40 per cent) and Amazon (32 per cent).

The new payment players must also get retailers on board. “Apple Pay needs merchants more than merchants need Apple Pay,” adds Husson. “So Apple still has to demonstrate the added value it will bring to merchants, such as better experience, faster checkout and incremental revenues.”

The UK’s mature contactless infrastructure holds it in good stead. Izard says many retailers already have payment devices with the necessary hardware to interact with this new technology. “For the vast majority of retailers it will be a simple case of a software update, if at all,” he says. “Whether a retailer is a small local or large international, the payment device is the gateway to ongoing technology innovations in this space.”

Apple Pay has been designed so that it can be embedded into websites, allowing Apple to provide the easiest touch point between customer and purchase, and Google is expected to take the same approach with Android Pay. This may, says Izard, marginalise other payment technologies that don’t have direct access to consumers in the way mobile device companies do. He urges retailers to purchase payment devices with NFC capability, and a software platform that can be easily updated is core to taking advantage of ongoing innovations led by mobile devices, whether Apple or Android-powered.

“I foresee, in the next three years, that a consumer’s mobile device will become the primary payment device due to technologies like Apple Pay, which will reduce the need for retailers to have traditional point-of-sale devices, because every consumer mobile will become a personal POS device.”

It’s something Paul Armstrong of emerging technology consultancy Here/Forth concurs with, pointing to Stripe and Jack Dorsey-backed Square Register, which allow even small retailers to run a modern POS system easily and affordably.

At its recent Worldwide Developers Conference, Apple announced a partnership with Square to provide US merchants with a cheap (or free for the first 250,000) card reader designed to allow small businesses to take Apple Pay payments as well as credit card chip payments, but not card swipes.

Meanwhile, Samsung recently acquired LoopPay which turns card magnet strip readers into contactless payment receivers, allowing retailers to accept mobile payments without changing existing terminals – a strong signal it too is readying a digital wallet launch.

Kalifa warns that such a groundswell of activity means that retailers who fail to embrace the technology will be left behind.

He says that fears over security are mostly misplaced. Retailers who haven’t upgraded their POS technology should do so now, and the cost of entry will continue to fall and the ease of entry rise as new NFC mobile device payment players enter the market.

For him, contactless is a “no-brainer” for businesses processing significant numbers of low-value transactions. Smaller businesses in key sectors such as hospitality, food, entertainment and retail are grasping the commercial benefits. Portable battery devices with mobile contactless and wearable tech will become the norm, with higher value contactless transactions adding further impetus and growth.

“We are definitely moving towards a cashless future. It is about frictionless payments and removing barriers. The train has left the station and the adoption numbers are impressive.

“2016 is the year this puppy gets fat fast.”

This feature was first published in the 22 July issue of The Drum.

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