There’s no denying that Apple Pay has shown a lot of strength right out of the gate. Part of that strength comes from its ability to get issuing banks engaged and enabling the provisioning of accounts in a simple way. At the time of launch in October 2014, nearly 500 banks supported Apple Pay. That base continued to gain ground throughout the end of 2014.
More recently, more good news came from Bank of America. In its earnings release, it referenced stats about Apple Pay and how many of its customers had downloaded Bank of America credit and debit cards onto their iPhone 6’s. And, the nation’s second largest bank has launched a massive TV ad campaign with a “Shop on-the-go with Apple Pay”marketing spin.
“It’s about staying relevant,” said John LaHair, a spokesman for Digita, told The Boston Globe. “You’ve got to have something for everybody.”
LaHair is quoted in an article headlined “Banks, Resolving Not To Fall Behind, Turn To Apple Pay,” that The Globe ran this week. The story pursues the notion that Apple Pay is the future and banks are jumping in because they want to catch that consumer adoption wave.
“For the size and scale of who can use it today, it’s exceeding other technology,” Ryan Bailey, executive vice president of deposits and payments at TD Bank told The Globe.
Bailey’s comment was in response to why the nation’s issuers need to be motivated to jump on the Apple bandwagon.
The Globe further reported that, according to Bailey, “consumers are taking to Apple Pay technology faster than they initially did to ATMs.”
The analogy to ATM “consumer adoption” is interesting. And perhaps even a bit curious.
Why …. you might ask.
Well, it all has to do with that “I” word – ignition.
When banks, back in the 1960s decided that they wanted to offer consumers another way to get cash, they didn’t have to worry about whether making an investment to install an ATM was dependent upon how many other banks did too. ATMs didn’t have a “network” issue to worry about as a condition of getting adoption of their own ATMs (even though having a network of ATMs certainly did help in the long run). Individual banks installed ATMs, gave out ATM cards to their bank customers and effectively created a new way for consumers to get cash from that bank. Getting consumers to use the ATMs wasn’t that hard since it solved a real problem for them - getting cash was only possible by going to a bank when those banks were open. ATMs and ATM cards eliminated that friction.
Mobile payments have a different problem and that is the problem that starts with an “I” – ignition. And it does because of the interdependencies associated with how many consumers and merchants accept a particular form of mobile payment. Consumers won’t download a mobile payments app unless they have places to use it – online or in-store – and it solves a problem for them or adds new value. And, merchants won’t bother with accepting mobile apps unless they believe that enough consumers have the app, want to use it instead of how they typically pay, and they’ll lose sales if they don’t enable payment that way.
Apple Pay, like all mobile payments schemes, has an ignition problem. They have to get both consumers and merchants on board. Interest on the part of merchants is totally dependent on the level of interest on the part of the consumer. And, in the case of Apple Pay, one more thing – access to iPhone 6’s. Those iPhone 6 customers have to then have enough hardware-enabled merchants at which to use their iPhone 6’s to get them excited about ditching their plastic cards for Apple Pay.
And, until enough of the places that consumers like to shop actually have hardware capable of accepting Apple Pay, consumers will continue to reach for their cards, since consumers know that no matter what, cards work at all merchants.
Since only a very small number of consumers have iPhone 6’s and a very small number of merchants have NFC-enabled terminals, the intersection of those two very small universes of consumers and merchants equals a very small number of transactions, anywhere. Making the number bigger can only happen when more merchants install more terminals capable of accepting Apple Pay and more consumers buy iPhone 6’s that can enable Apple Pay and those consumers are given a reason to use it.
Now, there is one point of similarity with ATMs and Apple Pay. Issuers worked with Apple Pay to enable their cards to be provisioned easily in the wallet, sort of like banks giving out ATM cards back in the day. So, consumers, curious about Apple Pay and hearing the hype (and watching the TV commercials about it) may have decided to register cards to their iPhone 6’s. But, getting those consumers to use those Apple Pay accounts religiously and drive a boatload of transactions is almost completely out of the issuers’ hands.
Very unlike the good of days of building ATMs, giving out ATM cards that can be used at those ATMs. Getting merchants to sign on is totally out of their control.
The discussion of adoption, therefore, has to take into account ignition, which was not the ATM’s launch issue.
Bailey has since clarified his statement.
"Consumer adoption of Apple Pay has been strong given the number of people that are capable of using it (iPhone 6 users). That ramp up per person has been stronger than we saw when deposits were introduced at the ATM here at TD, which speaks to how important it is that we added this convenience for our Customer,” Bailey noted in an email to PYMNTS.
The reference to ATMs he was referring to was ATM deposits at his bank, not to ATM adoption historically or universally. (And still not an issue that has anything to do with an ignition problem.)
That banks want to be onboard with Apple Pay if it ignites is certain, but banks alone will not ignite it. What remains to be seen is if consumers, perhaps motivated by their issuers, will take up interest with enough force to push retailers toward acceptance.
But for that, it would seem many more customers are going to need to have phones capable of using Apple Pay first and reasons to want to use it.