The potential for mobile payments is huge. Gartner expects mobile payment transactions to be worth $507 billion this year. Analysts are all predicting a steady increase in that figure over the next few years and the launch of Apple Pay is seen as a key driver of the trend.
We may see a boost in public interest in mobile payments as a result of the buzz that Apple Pay is generating, but this is still a fractured landscape and there are already signs that some potential competitors are going to block Apple’s system.
How does Apple Pay work?
The technology behind Apple Pay is nothing new, but the experience works a little differently because of Touch ID. To start with you use the card you already have registered with iTunes or you can add a new one. Your iPhone interacts with a terminal in a store using NFC (near field communication). Hold your iPhone up to the terminal, place your thumb on the Touch ID and you’ll feel a vibration and hear a beep to let you know that the transaction went through. You can use the same system to pay for things online without the NFC step.
That’s pretty similar to the way other solutions like Google Wallet work. It came out back in 2011, but it prompts you to enter a PIN to open the wallet app and sometimes you have to enter a PIN on the terminal as well. Apple’s Touch ID is a key differentiator in making the experience more convenient.
Huge amount of competition
Over the last couple of years we’ve seen a number of different services like Google Wallet launching and there are a lot of players in this space including Softcard (previously called Isis), Square, CurrentC, and PayPal.
Not all of them are using the same technology. CurrentC uses QR codes and recently made headlines because members of the consortium behind it, Rite Aid and CVS, blocked NFC payments in their stores, meaning Apple Pay and Google Wallet can no longer be used there.
There are two major reasons that this space is incredibly competitive.
- Whoever controls the transaction can scrape off a fee.
- They also own the user data, which is very valuable for advertising.
Banks, retailers, carriers, and a host of other companies are in the mix here forming various partnerships and alliances. There’s no telling who will emerge as the winner, but in the short term the lack of a ubiquitous solution makes consumers the losers and could seriously hamper the mobile payments trend.
The positive effect
While competition is inevitable there’s also evidence that Apple Pay is boosting rivals like Google Wallet. According to Ars Technica users and transactions have doubled on Google’s service since Apple Pay was announced.
There’s a good chance that Apple Pay will boost the whole industry simply by publicizing it. The advertising and marketing power of Apple and the partners it secured for the Apple Pay launch is considerable. The technology is rolling out into more and more stores, now they just have to convince consumers that mobile payments offer a tangible benefit.