Apple is one of the most successful companies in history. It is likely not a surprise to hear that Forbes recently ranked Apple #1 for the 8th consecutive year as the world’s most valuable brand ^1. When Apple decides to introduce a new product or service, its approach is typically one of the more strategically executed, encompassing immense effort toward customer-centric opportunities. Apple’s goals rarely showcase the interest of the business. Where many companies start with economics, Apple starts with the consumer’s point of view. With Apple’s strong reputation and approach it’s hard to imagine they make many mistakes. In September of 2014, Tim Cook, the CEO of Apple, announced the launch of Apple Pay stating “Our vision is to replace this [wallet] and we are going to start with payments.”¹¹ This new vision might be one of the most significant initiatives in the company’s history, similar to their 2007 jump into the mobile phone market with the iPhone. How would Apple, traditionally known for its technology, move into the financial industry? Could Apple truly become a leader in the digital payments market?

Losing Momentum in the US

Since it was introduced in 2014, Apple Pay has seen decent growth. A 2019 report from Loup Ventures⁴ suggests that Apply Pay has been activated by 43% of global iPhone users. This number was up from 36% in 2018. That same report suggests that roughly 12% of Apple Pay users are in the US, leaving 88% to be international⁴. Apple Pay adoption in the US is low compared to other countries.

            Apple Pay has a significant hurdle to overcome in breaking the habits of people in the US. The US has had a long struggle with modernizing its financial transaction system. Consumers are complacent with their current payment methods. In 2016, a reported 47% of those who had not tried Apple Pay, said their reason had to do with satisfaction with their current payment method ³. As Tim Cook mentioned, the US has been transacting with a piece of plastic for five decades. It is safe to say that old habits die hard. As people in the US are complacent with current methods, it is interesting to assess that comfort against the fact that in 2017, the US was accountable for 47% of fraud in the world ³. Consumers are happy with their plastic, and the data suggest they should not be. Why are consumers not buying the security and privacy provided through the adoption of Apple Pay?

            Although Apple’s initial acceptance of 700,000 retailer locations was impressive, many consumers are uncertain as to which retail locations support Apple Pay. This uncertainty may also be contributing to a slow down in momentum for Apple Pay. Imagine the number of consumers who downloaded Apple Pay only to walk into Wal-Mart, Best Buy, or Target to discover the payment method was not accepted. That is a promise unfulfilled with some of the larger retailers potentially resulting in a failed customer experience. Something that Apple’s culture does not traditionally deliver.

As Apple continues to search for more opportunities to grow in the US, they may have to accept that a barrier with their most loyal Apple users has been reached. Combine the potential lack of interest and unexplained loyalty to poorly secured methods of today, and it is safe to say that Apple may have built the product on a poor vision aimed at addressing a consumer problem that may not exist – replacing their wallet.

Greater Competition

The race between digital payment platforms is picking up steam. If Apple intends to increase the adoption of Apple Pay in the US, they not only have to convince consumers that their method is secure and available, they also have to work against the growth of companies like Amazon, and the Amazon Pay service.  Where many of the early digital payment methods – Apple Pay, Android Pay, and Samsung Pay – struggled with early availability, Amazon Pay enters the field under the enormous umbrella of its e-commerce platform. Amazon has increased promotion of its digital payments platform, including introducing payment options in collaboration with restaurants and retail stores. In addition to promotion, Amazon is restricting the use of Apple Pay with their e-commerce platform driving customers to use Amazon Pay and increasing their entry into the market. Amazon Pay could see an estimated 50% of the market share for digital payments⁷. A 2016 update to accept EMV cards included technology to support tap-to-pay methods⁸ further. This advancement potentially extends the reach for Apple Pay and Amazon Pay. Unfortunately for Apple, their earlier release may have mainly prepared the market for broader acceptance of digital payment methods, making it easier for companies like Amazon to capitalize.

Facebook is also entering the digital payments realm, working on its payment platform. Their focus is on cryptocurrency for peer-to-peer transactions. Ironically, Facebook’s approach aims to distill fears over privacy concerns, an area of weakness for their social media platform ⁹. Facebook’s focus on developing a robust peer-to-peer payment service is intended to improve trust with the company.

            With Amazon and Facebook also representing top brands, their entry into the market may create obstacles for Apple Pay. In addition to the top brand competition, Amazon and Facebook may have the ability to reach international regions beyond what Apple is currently capable of given its low installment shares in base markets.

Commitment to Growth

The competition will test Apple’s commitment to growth in digital payments. The company already offers a 10% bonus to customers who add $1-$200 to their account. However, the company will have to go beyond simple discounts. In many ways, Apple has to re-introduce Apple Pay to the world at a time where the concept is more likely to be accepted. Without question, the ability to pay through a mobile device is extraordinarily optimal, but consumers will have many more options available to them. Apple will have to explore new and unique value propositions, going beyond the idea of replacing the traditional wallet and possibly explore increasing financial services or extending its discount offerings. In 2018, Amazon spent $138 million to increase the market share of its digital payments platform⁷. Would Apple compete with Amazon considering that heavy investment toward extending its platform reach?

Recommendations

Continued adoption and growth for Apple Pay may require more than what Apple initially thought. However, the idea of modernizing the way consumers handle transactions is the right one. Apple must revisit its campaign for the product and consider turning consumer attention toward the benefits of privacy and security. Consider the number of security breaches in the US and how consumer access to information and the perceptions of shared information may be contributing to skepticism. Consumers may want to hear more about the technologies driving such improved security and how it is different from merely covering a 4-digit PIN with a hand.

Apple should change its pitch and move away from replacing the wallet altogether, focusing on providing alternative methods for managing finances. Consumers do not appear to hate their wallets and may care more about managing what is in their wallet. Apple Pay can help with that, offering a potential complement to the physical payment methods of the world. Do not make consumers feel as if the shift has to be a dramatic tear away from something intended to be secured to their pocket or purse – the wallet. The pitch – replacing the wallet – does not appear to address a concern of the customer, so shift focus to something that will.

Improving the process in which customers are on-boarded to Apple Pay might help increase adoption. Onboarding – a step-by-step setup for service – with Apple products can become out-dated, leading to customers skipping forward to access the more established features they love in their mobile device. Apple must continue to explore innovative ways to suggest signing up for service like Apple Pay or using its peer-to-peer payment systems.

Conclusion

Apple has traditionally taken pride in its culture of customer first. Looking back at their 2014 launch of Apple Pay, it is possible that their motivations clouded their assessment of consumer challenges. While Tim Cook was right about the outdated payment processes of the US, the vision or perceived attack on the wallet might have been misguided. With many big-name retailers unable to accept the Apple Pay method, the introduction of the product may have been too far ahead of its time. Apple may have laid the foundation for its competition to enter the digital payments market at a point of more maturity as consumers now have a better understanding of the ease of use and stronger security benefits. Certainly, Apple will find a way to adjust its strategies with Apple Pay, but the initial launch may be one of the few instances in which Apple missed the mark with consumers.

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