When people ask – “how hard is payments?” – there are a variety of ways to answer that question.
There’s the simple and direct approach – “Insanely and unimaginably.” One could go into an intricate explanation of two-sided platform economics (and possibly win a Nobel Prize a la Jean Tirole).
Or, one could point out that the founding cadre of the first digital payments platform to really hit it big – PayPal – who are now Silicon Valley’s answer to the Illuminati (if The New York Times is to be believed).
But if one were looking to state it succinctly – without having to quantify terms like “insanely” or “incredibly” – one could just say the following. “Just ask Apple. They are right smack dab in the middle of the payments buzzsaw right now."
Last week PYMNTS brought you the latest chapter in the Apple’s ignition blues story which was a new survey suggesting that users are having problems at the POS, even in places where Apple Pay is supposed to work.
Specifically, the survey found almost half — 47 percent — said they went to a retailer that should have accepted the service, but that the service wasn’t actually ready to be used yet. It also found that 67 percent said they encountered some kind of problem when trying to use Apple Pay, problems including unknowledgeable salespeople, longer than expected time frames or malfunctioning NFC readers. Altogether, 48 percent said that they did not plan to use the service again.
That data follows joint research by PYMNTS and InfoScout that indicates a slightly different story. Most users who used Apple Pay really loved it. The biggest problem is that most of them – as in 85 percent of potential Apple Pay users (iPhone 6 owners at a location that accepts Apple Pay) – hadn’t ever tried to use the platform.
So, it’s not exactly “ignition” if 85 percent of potential users aren’t trying it, and half the ones that do say they won’t ever try it again.
However, every dark cloud has a silver lining – and for Apple thus far that silver lining has been the sunnier story on the in-app purchasing side of payments.
Though Apple is only taken in about 700,000 physical merchant locations – it has been consistently capturing digital commerce players since launch – both cyber-side only applications like Uber and physical retailers like Target (who, also like Target, may be contractually barred from using Apple Pay in store) who have seen big results from enabling Apple Pay for in-app transactions.
So is the real Apple Pay story its awesome in-app performance? Well, as with most things Apple Pay, it is still a little early to say. The word of mouth is impressive even if the volume is still quite small.
The Good News In App
It would be unwise to ignore Apple’s quiet but powerful performance in app. Fortune – in a piece rather enthusiastically titled “The effect of Apple Pay on the App Store: Ka-ching” – made an informal study of online retail and Apple Pay – getting comments from Staples, Fancy and Spring – among others.
"Apple Pay has already become the No. 1 payment method at Staples.com,” says Prat Vemana, who runs Staples’ eCommerce business. Staples further reports that 30 percent of all transactions on eligible devices are now completed with Apple Pay and conversions on those devices are up 109 percent.
"It’s not only driving more purchases but activating our biggest spenders,” says Joe Einhorn, CEO of Fancy, a crowd-curated catalog store. Einhorn further reports that purchase frequency is 30 percent higher among Apple Pay users and that they spend five-times more than non-Apple Pay users.
PYMNTS reached out to ChowNow CEO Chris Webb. ChowNow builds commerce websites for restaurants looking to enable “to go” orders online and on mobile.
"When Tim Cook was on stage we were into it,” Webb says. “As soon as they opened up the developer API information we were on it, which is why we are the first restaurant group to roll it out. We’ve always been more excited about the in-app benefits than the in-store point-of-sale benefits. I use them, because I am a nerdy early adopter and I geek out over this stuff – but as far as solving a pain point in someone’s life, using Apple Pay in an application makes a whole lot of sense."
From his point of view, the advantage is particularly in the speed associated with account creation. By allowing users to essentially create an account and go using Touch ID – as opposed to having to key in card information on a small screen – Webb notes Apple has, in a single stroke, taken the friction out of the process.
"That reduces so much of the friction of putting in all that information that it just directly translates to a higher conversion with more people actually ordering,” Webb noted. “Every eCommerce company has the problem of abandoned carts where you add something and go to check out and decide you just don’t feel like entering all that information. Because a lot of that is removed with Apple Pay, that then translates into more orders for restaurants."
Webb notes that they don’t yet have data for exactly how many more orders Apple Pay is converting for restaurants – since it’s one of many metrics they have just recently begun tracking – but they do know that using Apple Pay shaves about three minutes off the account creation process – which in mobile time is approximately equivalent to a decade.
The other data that Webb has seen is the almost immediate sharp incline of Apple Pay-based orders since it became widely available on all the apps ChowNow supports.
"Across all iOS orders – that includes older iPhones that just don’t accept Apple Pay – we’re seeing on average across all our apps – and we have over a thousand out there – 20 percent of all order use Apple Pay,” Webb noted. “In some cases that number is up to 30 percent."
Why the higher percentage in some spots?
Webb says he’s unsure – and that this is one of many things that ChowNow has recently began tracking to get a fuller picture of Apple Pay use within their apps. How Apple is performing as a percentage of all mobile payments, how it is performing among iPhone 6 users specifically and what sets the noticeably higher user rate sites apart are all questions that ChowNow hopes to have a better understanding of within the next few weeks.
What’s clear with the data they have today, however, is that Apple Pay’s potential in-app benefits are clear – it’s not just a payment method, it’s a friction killer that keeps customers converting.
Keeping A Reasonable Sense of Proportion
The app numbers for Apple are undeniable heartening – as 30 percent usage rates among eligible users is much more encouraging than figures that go as high as 85 percent non-usage. And even the more disheartening reports on Apple Pay usage in store generally call some attention to the strong app use rate.
PMI’s survey noted, for example, that 88 percent of potential users had used the service to make a payment in store or in app. And while this is good news – a quick look at the total field of number in play indicates why this is not great news.
While there are a variety of figures for what percentage of total eCommerce digital commerce represents – the generally agreed upon number is between 6 and 7 percent. This means if Apple captures 100 percent of all eCommerce in the U.S. – it will still have a problem because it only works at about 3 percent of physical retailers, and 97 percent of all commerce takes place in physical retailers.
But Apple Pay is not a general digital payment platform like PayPal – it is limited entirely to mobile devices -which according to Gartner means the most of the total eCommerce spend it could capture would be about 22 percent. Taken as a percentage of total commerce, that is slightly more than 1 percent.
Except Apple Pay doesn’t work on Android devices – so that cuts that a little over 1 percent by half. Apple Pay also doesn’t work on all Apple devices, nor will it work in all possible mobile transactions (due to its low in-store acceptance rate) – but one doesn’t need to do all the math to see where this is going – even if Apple Pay captured every single transaction it possibly could with every eligible user – it would still be capturing far less than 1 percent of total retail spend in the United States.
If that math sounds familiar – it should. It is a stripped down version of a more precise set of calculations MPD CEO Karen Webster did a few months ago when she tried to calculate exactly how many consumers were in Apple’s basket. The simple answer then – not enough to really get to the kind of scale a payments platform needs to ignite.
And it seems the fundamentals of the playing field have not changed very much since that conclusion.
However, the game is early, and Apple certainly has a lot going for it – particularly in upping consumer enthusiasm for app based commerce by lowering the friction. It’s not impossible Apple will still surprise here and find a new way to ignite in app and maybe even using in app and beacons as a way to reinvent the in-store experience.
Stranger things have happened in payments. After all, Google did buy Softcard.