Can Apple Make Mobile Payments Pay in the U.S.?

Experts Say That If Anyone Can Succeed, Apple Can -- If It Gets Enough Retailer Buy-In

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At some point next year, you may decide to ditch your wallet. With a touch of your thumb and a tap of your phone, you can pay for everything you need. Then one day you pull out your phone at a drugstore and the cashier says the mobile terminal is down. Or maybe your phone dies.

These are the not inconsiderable hurdles that could greet Apple's mobile-payment system Apple Pay, which went live last week. As sometimes happens when Apple wades into a particular arena, tech pundits have declared Apple Pay will "kill the credit card" and "change everything."

Several boardrooms probably scoffed. For years, tech startups and tech giants, venture investors and retail behemoths have tried to synch purchases to mobile phones. They've made little headway.

Apple, the nation's top smartphone vendor, is the best candidate to end the losing streak. Already, it has surpassed earlier entrants with Apple Pay, which Apple says works with 220,000-plus merchants, over 500 participating banks and the major credit-card networks. But even Apple must overcome sizable logistical unknowns both within its control (iPhone battery life) and outside it (the drugstore clerk).

In addition, Apple needs to do what it did with the iPhone: convince consumers they must have it.
For years, Apple stayed out of payments, refusing to outfit its devices with near-field communication, the tap-to-pay technology. That helped leave the payments world "very fragmented and competitive," said Bryan Yeager, an eMarketer analyst. Dozens of chain outlets were tinkering, but none had settled on a uniform system. Without Apple, Mr. Yeager said, "there was a lot of reticence in either investing in [point-of-sale] terminals or even turning them on."

So far, the growth of mobile payments has been hampered by turf battles. Google introduced its offering, Google Wallet, in 2011. Then, in a rare fit of cooperation, Verizon, AT&T and T-Mobile united to create the Isis Mobile Wallet (rebranded, in September, as Softcard), which relegated Google Wallet largely to Sprint customers.

Softcard relied on NFC, hoping Apple would tap the technology. It didn't. Prior to the release of the iPhone 6 and 6 Plus, iPhone owners who wanted Softcard had to buy an enabling case, starting at around $30, which Jim Stapleton, senior VP-sales for Softcard, admitted is "an unnatural act" for consumers.

Neither digital wallet gained much traction. (Google declined to comment on user numbers; Softcard said it has registered 20,000 activations daily, since last spring.) Analysts claimed the services were poorly marketed.

They suffered from an onslaught of competition, too. In 2012, major retailers, such as Walmart, Target and Lowe's, launched the Merchant Consumer Exchange (MCX), a mobile-payment platform. Financial-services companies also have experimented with their own offerings. Several Google Wallet staffers departed, including its co-founding engineer, who left for Square, the heavily funded payments startup.

Then social-media titans jumped in. Twitter unveiled its "buy button" and acquired a company that ties e-commerce with offline retail. Facebook hired PayPal's president, David Marcus, to run its Messenger app.

As the sparring continued, Apple waited. Behind the scenes it was building Apple Pay in a very Apple way: its retail and financial partners were reportedly kept unaware of each other. According to Bloomberg, Apple cut deals to take transaction slices from banks, dipping into a mobile-payment market that Forrester Research expects to reach $90 billion by 2017. Apple also crafted an accessible user experience, allowing consumers to store their credit-card info inside the iPhone. Apple did not return requests for comment.

Ben Reubenstein, president of Possible Mobile, said that other offerings lack "the polish" of Apple's product. "The experiences are night-and-day different." Said Rachel Pasqua, MEC Global's head of mobility, "They've made it as tight as a drum."

So tight, in fact, that no purchasing data will seep out of Apple Pay, which could temper marketer excitement, but should put customers at ease. (Similarly, Google does not share data from Google Wallet transactions, said Sherice Torres, director-commerce marketing. "It's a user-solution, not an ad-driven or marketing-driven solution.")

There are, however, several things about Apple Pay that seem very un-Apple. For one, it relies on thousands of partners. Apple typically prefers to own the whole experience, much like Starbucks does with its mobile-payments system. With Apple Pay, Apple is "really putting a lot of faith in their merchant partners," said Mr. Yeager.

Some merchants aren't returning that faith. Walmart and Best Buy have flatly refused to accept the payment, citing the costly NFC terminals. While Apple boasts an impressive number of accepting merchants, they represent only a sliver of the terminals nationwide taking plastic -- around 8.2 million, per the Electronic Transactions Associations.

Yet mobile experts insist that if consumers pick up Apple Pay, retailers will swiftly follow. Already, several card companies have marketed Apple Pay. And if any company can turn a market, the one in Cupertino, Calif. can. "For something to really catch on like wildfire on the consumer-adoption side," said Ms. Pasqua, "it takes Apple to do it."

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CORRECTION: In an earlier version of this story, Bryan Yeager was incorrectly referred to as Ryan Yeager.

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