Will Payments Be Apple’s Summer Story?

While late 2014 and early 2015 were largely “The Apple Pay Show,” as far as Apple fans, financial services geeks and tech bloggers were concerned — by Spring new favorites had cropped up to steal some of that laser-like focus on Apple’s foray into the wild world of payments.

True, throughout the great thawing of 2015, Apple continued to pick up merchants, sign on banking partners, negotiate (slowly) with China and attempt to knock down business model barriers that has thwarted expansion in Europe so far. Apple Pay and its user base has also been the subject of many, many research efforts — which mostly disagree with each other on exactly how many consumers (or merchants) are actually in Apple Pay’s basket.

Of course we are partial to the numbers PYMNTS and InfoScout released jointly earlier this year that actually measured what people do instead of what they say they might do one of these days. That study found that Apple Pay was popular among those who used it – but remained widely underused and underused by those who could. Turns out, that it’s all about habit and acceptance – two sides of that same coin in payments. But if one were looking for a chipper conclusion – one could certainly find numbers to support it (though we won’t vouch for the integrity of all of those numbers that simply measure intent).

However most of the Apple Pay news this spring has taken a backseat to the newest Apple gadget — the Apple Watch — which has captured a ton of headlines. After selling out for early delivery within hours of going on sale, Apple’s apparent run on actually igniting wearables has been the story of the Spring.

And, as Spring turns to summer, the chatter on Apple’s newest wearable is starting to shift.

As of the time this story was written, analysts at KGI and Morgan Stanley disagreed on which direction first year sales’ numbers for the Apple Watch should be adjusted.

KGI’s Ming-Chi Kuo has cut his prediction in half to 15 million, citing weakening demand and production issues. Meanwhile, Morgan Stanley’s  Katy Huberty revised her figures up to 36 million units sold by year-end, noting a belief that demand was strengthening and that Apple could have sold 50 million, but is not able to meet that level of demand.

And while the experts are hashing it out over how much consumers really want an iPhone extension for their wrists – it seems some space has opened up for the Apple story of the summer.

Much to the delight of the payments crowd, Apple Pay has stepped up to the bat with two offerings going into the unofficial start of summer this Memorial Day weekend.

In a sort of goods news-bad news breakdown, there’s the headline that Apple enthusiasts would assuredly love to see catch on: Apple Pay officially jumping from early adopters to mainstream users, and gaining traction among merchants. Then there is one they would probably like to bury under a pile of wet sand — how fast fingered fraudsters have found a way to exploit the system to make payments on the Apple Watch via Apple Pay.

Hot Fun In The Sun For Apple

A May 17 report from Goldman Sachs analyst James Schneider drawn from a recent survey of users indicates that an increasing number of merchants are accepting Apple Pay — and that charge is primarily being led by larger retailers. That is born out of recent announcements by Bloomingdale’s, Trader Joe’s, Best Buy and Home Depot of their intentions to accept Apple Pay going forward (or in the near future).  Apple Pay has seen its merchant acceptance rates steadily climb since its introduction in October 2014 — to its current perch at 67 national merchants, as well as offering payment support in 61 apps.

That same report, however, did indicate that adoption rates are seriously lagging in small and medium sized physical retailers – who report a much lower general interest level.

That Goldman Sachs survey estimates the number of Apple Pay users to be around 1.6 million and, with a deal to support Discover cards soon to go into effect, Apple is on track to cover 90 percent of U.S. card purchase volume.

We still think that overestimates the reality of users.

Here’s our math, first published on May 8, based on what users are doing, and the current number of iPhone 6 enabled users.

Of course, one could add to those iPhone 5 users plus Apple Watch buyers, but that’s likely to be a pretty small subset, and not enough to really move the needle.

The Fraudster Cometh

Speaking of the Apple Watch.

While the stories of expanded use among consumers and acceptance among merchants are certainly good news, and what Apple and its fans would love to spend the summer reading – it also seems that the emergent success with the iPhone has attracted fraudsters who have found a way to exploit the watch’s security features.

When a user first puts their Apple Watch on in the morning, they must enter their passcode.  After that, as long as the Watch stays in contact with the wearer’s skin, users can tap into the phone’s apps — like Apple Pay — without having to reenter that passcode. That trick is accomplished by sensors in the watch that detect a user’s heartbeat. Once contact is lost, the watch “locks up” and users have to re-enter their information.

As a convenience for wearers, however, the watch does not lock immediately – lest it do so every time someone’s watch shifted on their arm. Instead, there is a one-second delay between loss of contact and the security reset.

Which at least one Internet denizen has figured out how to leverage.

As this video demonstrates — the watch can’t tell the difference between the skin on one person’s wrist and another person’s fingers. A fast fingered thief could use that one-second delay to slip two fingers over the rings on the back of the Watch – which include the four components of the heart rate sensor – and lift the Watch off a victim’s wrist.

As long as they got it onto their own wrist, they would then have unlimited amounts of access to the rightful owners Apple Pay account — or at least they would have it until such time as the original owner noticed their watch has been lifted.

Good grief. Some people have way too much time on their hand.

It is worth noting that the good folks at GadgetHacks note that this particular scam doesn’t always work, and relies on extremely quick nimble timing as the window is only one second long.

Still, as Apple is trying hard to recruit users and merchants, which means wide reports of fraud, however difficult to pull off, are likely not looked upon with favor.

Spring 2015 will unofficially be over at the end of the upcoming long weekend. Will an army of Apple-wristed shoppers hit the summer shopping scene ready to use Apple Pay? Even the most enthusiastic reports indicate no.

But Apple’s payment platform seems to be making progress in moving merchant acceptance forward in physical stores. Will it be enough? Or should physical stores give way to mobile and digital – where there is both friction and opportunity.

Check in with us again at Labor Day — we guarantee there will be another three months of conflicting data to look at.

Happy Memorial Day!