Contactless payment technology dates back more than a decade. And while its long been promoted as a catalyst to mobile payments adoption, we’ve yet to see that come to fruition at scale. The reason why is fairly simple. In order for contactless to really take hold in payments, there needed to be buy-in from both the issuers to drive the use of the technology, as well as the merchants to accept contactless payments.
So what’s different with the introduction of Apple Pay? While Apple has a proven track record of moving markets and bringing existing technologies to the mainstream, there are many other factors at play to make the time right for contactless. Apple set out from day one to launch something at scale. A platform that includes the three biggest payment networks and the largest issuers in the country – to be able to reach more than 80 percent of card volume by the end of 2014 is something that just can’t be ignored. Having the issuing side of the market move at this pace is what it takes to get the payments engine spinning –since merchants are motivated by the volume of transactions that they will see. We’ve already seen that this has had an impact through the merchants that have committed and we only expect that to increase when the program goes live.
Leveraging an Existing Acceptance Base By working with the payment networks, including MasterCard, Apple has been able to bring the existing contactless merchant base to Apple Pay. We first delivered contactless technology, through PayPass, to the market more than ten years ago. And since that time we’ve worked to get a roster of prominent merchants across key categories – transit, convenience, quick-serve restaurants and retail – set up to accept contactless payments. When Apple entered the scene, their addition of NFC technology to the iPhone 6 and 6 Plus enabled them to leverage this work. That’s how there are 220,000 accepting U.S. merchants already in the United States – and that list continues to grow. From a global perspective, there are 2.5 million merchant locations that accept contactless payments – so as the ApplePay program rolls out to other regions, the same groundwork exists – and in some markets is even better established.
Timing is Everything The move in the U.S. to EMV cards is providing favorable timing for contactless to be a part of the dialogue. Credit-card networks are incenting retailers to install payment terminals that accept cards embedded with a chip. If they fail to do so, the merchants, instead of the banks, will be liable for fraud that originates from cards that have chip technology embedded in them starting in October 2015. This, combined with the ongoing security dialogue in the media is providing a strong impetus for merchants to take action. In the process of upgrading terminals, many merchants will now be able to enable contactless technology as the great majority of new terminals support both EMV and contactless.
Delivering an End-to-End Customer Experience A key differentiator of the Apple Pay model versus other offerings that have been in the market is inclusion of in-app payments. Many merchants already provide their customers with an app to help them remain top of mind and to deliver a view into loyalty programs and make them aware of new shopping opportunities (special deals, new product launches etc.) Merchants are focused on driving a one-to-one customer relationship. Apps on a smart device are extremely compelling because merchants can now deliver a holistic customer engagement from purchase through to transaction – all in a merchant managed and controlled frame. What we are delivering is the ability to turn merchant apps into something that will generate both loyalty and secure transactions.
Cash – the Common Enemy The move to device-based commerce is yet another front in the war on cash – and its displacement from the payment system. In order to wage this war we are making it convenient for the consumer to pay simply and safely. And using a device which is already a key part of a consumer’s day-to-day life just makes sense. To be clear – there is nothing wrong with a payment card. MasterCard is honored to have 2 billion cards in circulation with our brands on them. Cards are very good at doing one thing – payments. But now we can integrate payments into mobile devices, we can add further functionality that is useful for consumers – and deliver a better end-to-end user purchase experience. This is a proposition that we feel confident will drive merchants to support contactless at their Point of Sale and payment-enabled applications for their customers.