Despite Its Appeal, Apple Pay is Off to a Bumpy Start

Apple Pay

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Mike Randall
By: Mike Randall
Posted: July 1, 2015
Our finance experts and industry insiders blog the latest news, studies, current events, and other interesting tidbits from inside the credit card industry.

With the long-awaited announcement of Apple Pay being released on the new iPhone 6, Apple has clearly thrown down the gauntlet in the mobile payment war.

Among the hip and techo-savvy gadget crowd, Apple Pay is the logical evolution for their much-loved devices, but for some, the idea of a mobile device that holds all of their financial data is a terrifying thought.

How it works

Think of the Apple Pay service as a virtual wallet that can store your credit card info, just as if you had them physically in your possession. The action of pulling out your wallet, fishing around for the card you want and then swiping it or handing it to a clerk – all of that is replaced by simply holding your phone next to the payment terminal and using the Touch ID button to validate your fingerprint.

Using a technology known as Near Field Communication, or NFC, the iPhone 6 (and expected future iPhone versions) sends and receives signals at the checkout counter. The information is fully encrypted, and each transaction is given its own one-time payment number and security transaction code.

In addition to this ultra-secure transaction process, Apple also says they don’t collect customer data relative to each sale (unlike other payment processing systems).

Problems in e-Payment Land?

Of course, the system isn’t without its flaws and oversights. One of the early retailers to support Apple Pay is Macy’s, which did about $28 billion in sales last year. So what’s the problem?

Apple Pay doesn’t currently accept Macy’s store cards in its payment system. Sure you can use your Visa, MasterCard or other accepted form of payment, but then you would miss out on store promotions like special coupons and other offers that come only with using your Macy’s card.

Other retailers such as Toys R Us also have not been invited to the Apple Pay party.

Additional problems include recent reports of double-charging for some transactions. However, this appears to only impact certain card holders and institutions – namely Bank of America. So far more than 1,000 complaints have been filed, and all have been resolved by a call to the bank. Apple says the problem lies with Bank of America’s processing system.

If you’re looking to rack up rewards while using Apple Pay, you could simply add a credit card with a points and gifts system.

Competing systems

Apple Pay isn’t the only mobile pay game in town, however. A group of major retailers has formed a consortium called Merchant Customer Exchange (MCX) and is working on their own system of electronic payments using NFC.

This seems to be the driving force behind recent announcements by Rite Aid and CVS that they were pulling their acceptance of Apple Pay.

The two national drug store franchises are participants in the MCX consortium, and Apple Pay is seen as a threat to the implementation of their as-of-yet unreleased service called CurrentC. Other participants in the MCX system include Best Buy, Gap Stores and the biggest retailer in the world, Walmart. They also may be expected to forego support of Apple Pay.

The competition between mobile payment systems is a high-stakes game for both merchants and payment processors. The CurrentC system is expected to bypass the credit card companies by completing transactions directly with a consumer’s debit account. This means a loss of revenue for card processors and could result in a major shakeup for the entire payment processing system.

The final word

According to industry experts, Apple has a real head-start and a great shot at being successful with Apple Pay. Consumers seem to like the fact that their purchases aren’t tracked, along with the security of their transactions. They also have the support of Visa and MasterCard, who will continue receiving a processing fee under Apple Pay – unlike with the competing CurrentC system.

If past endeavors are any indication, Apple will continue to gain support and acceptance for their new mobile payment system, despite the initial glitches. The question that remains is how many competitors will they need to hurdle on their way to the finish line?

Photo credit: Monica Davey / EPA