The Impact of Apple Pay on the Retail IT Channel and POS Resellers
By Kevin Kogler, President of MicroBiz
By now, everyone in the reseller community should be aware of Apple Pay, Apple’s new mobile payment system. With Apple Pay, the actual credit and debit card numbers are not stored on the device nor on Apple servers. Instead, Device Account Numbers, a new NFC antenna design, Touch ID, a dedicated chip called the Secure Element and dynamic security codes are utilized to keep transactions secure and protect account information. Apple has also assembled a line-up of the major payment networks, gateway providers and high profile retailers to support Apple Pay out of the gate. Apple is hoping that its scale and reputation will be the catalyst to re-energize mobile payment adoption, which to date has been quite disappointing.
Who is initially Aligned with Apple?
Apple Pay supports credit and debit cards from the three major payment networks — American Express, MasterCard and Visa. So, cards issued by banks with these card brands can be used with Apple Pay.
Apple also announced an initial line-up of partner gateways/processors consisting of TSYS, Chase/Paymentech, First Data, Authorize.net and Stripe. Only these gateways will support Apple Pay at its launch.
Who is Initially Looking In from the Outside?
Discover was noticeably absent from the announcement with Apple Pay. Discover’s partnership with PayPal no doubt limited its ability to initially be part of Apple Pay. As a result, Apple Pay users will not be able to link their Discover Card with their Apple Pay account.
Competitive mobile payment solutions are also excluded from Apple Pay. eBay’s PayPal unit has been in the market since 2012 with an in-store solution that does not require NFC. It has had limited success despite a high profile launch with Home Depot. MCX is a NFC-based mobile payments solution owned and supported by a group of large retailers. The most influential retailer in MCX, Wal-Mart, has already announced that it will not be supporting Apple Pay in its stores. Softcard (fka ISIS) is yet another competing NFC-based mobile payment solution backed by a group of global telco providers. Then you have Google and Amazon, which are still trying to figure out how to enter the space.
Not all payment gateways and processing services will support Apple Pay. For example, the two biggest integrated processors in the Reseller Community, Mercury Payments and Merchant Warehouse, were not listed as gateway/processing partners of Apple Pay. Recall that both these processors recently announced partnerships with PayPal. While I am sure these two processors are scrambling to be able to support Apple Pay, it is not clear when this will happen. Most other processors and gateways are in the same situation.
What should POS Resellers do?
- Relax! It will take time for a winner to emerge
Apple Pay has received a lot of press, but soon the smoke will clear and retailers and consumers will see that there needs to be a consolidation or standardization of competing solutions. eBay’s PayPal unit has a solution that does not require NFC. MCX backers will not be enthusiastically adopting or supporting Apple Pay. The major telcos are not ready to give up in Softcard. Rather than trying to immediately place a bet on one of these solutions, resellers should take some time and allow the competitive landscape to shake out a bit. Some of these services may go away, or more likely, standards will emerge enabling consumers to use anyone of these payment methods in-store.
- Relax some more. It will take even more time for consumers and retailers to adopt mobile payments
It will take some time for consumers and retailers to get the infrastructure in place for the phone to become a primary payment method. While customers may find it cool to use Apple Pay, I doubt that many will switch to a different retailer just because they are required to tender a credit card. Only the iPhone6 will have the NFC chip to enable Apple Pay, so it will take time for enough iPhone users to upgrade models. Further, the iPhone currently only represents about 12% of mobile phone sales globally (Android has a 80%+ global market share). Then there is the investment that the merchant will have to make. An NFC-enabled reader costs between $250 and $300. That is tough for most small merchants to justify in order to accept Apple Pay. Merchants also need to train staff and set up backend IT systems. While Walgreens and Nordstrom have the budget to replace their POS terminals at once, it will take much longer for smaller chains and the independent SMB retailers to make this investment.
- Formulate a Strategy to Address EMV and Mobile Payments Together
While retailers will want to be able to support mobile payments, the pending liability of not supporting EMV will likely resonate with smaller retailers more that ‘cool’ factor of Apple Pay. So, try to tie these two together and make sure you have a strategy to deliver both a mobile payments solution and EMV support in a single solution. The EMV deadline is October 2015, so you do have some time to research this and come up with a solution that meets both needs. Focus on developing an offering that includes a POS system and/or payment processing terminal that supports whatever method of payment the end user chooses. Ideally, the POS system and payment device would support NFC, HCE, Bluetooth, QR Codes, EMV and whatever else is possible.
- Check in with your payment processing/gateway partner
The question is not whether mobile payments are coming, but when they are coming. Its critical for Resellers to have technology partners that have the focus and resources to change with the industry. Make sure your partner is embracing technology that enables you to grow with your retailers (mobile payments, EMV, cloud software, integrations, omnichannel, etc). If your current partners do not have a clear strategy for requirements such as Apple Pay and EMV, or continually miss deadlines, it may be time to make a change. Do not be saddled with a technology partner that holds you back.
- In the near-term, focus on your fundamental value proposition without making any specific bets
If you think this is confusing for you as an IT services provider, imagine what it’s like for your customer. It’s important for you to continue to educate your customer on their options and timing. But, there is no need to make a bet on one solution right now. While there is a lot of noise in the market on these new solutions, some things are unchanged. Retailers should still be focused on end-to-end encryption for all payment transactions, regardless of whether they are mobile or card based. Its still critical that the technology seamlessly supports the workflow needs of the retailer. No one knows who is going to win the mobile payments battle, so instead of trying to choose a winner right now, develop a strategy that will support multiple payment options.