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Insight Report: The Future of Apple Pay

Insight Report: The Future of Apple Pay

  • February 2015
  • 33 pages
  • ID: 2670525
In this report:
The introduction of Apple Pay is expected to lead NFC-based contactless payments to gradually polarize into iOS and Android-based solutions, with a limited number of service providers dominating the market.
POS vendors and acquirers are expected to offer bundled deals for merchants to simultaneously upgrade their terminals to EMV and NFC, resulting in an accelerated expansion of NFC acceptance.

Summary

Table of Contents

Abstract

Apple Pay is a main milestone in the evolution of mobile payments, partly as it bears what Forbes lists as the world's most valuable brand. Apple Pay is seen by various as an inflection point, and its development over the next three to five years has the thinkable to shape the payments industry for decades to come. According to Apple CEO Tim Cook, Apple only ventures into areas where it can control the primary technology, which perhaps hints at Apple's plans in the payment industry.

Apple's current business model follows a cooperative approach, with almost all main card networks, issuers and acquirers supporting the launch of Apple Pay. EMV migration in the U.S. plays a pivotal role in Apple Pay's adoption. Merchants are in the process of upgrading their POS terminals to EMV, which in most cases will also comprise NFC hardware. These terminals only require a simple software upgrade to be activated. POS vendors and acquirers are anticipated to offer bundled deals for merchants to simultaneously upgrade their terminals to EMV and NFC, resulting in an accelerated expansion of NFC acceptance.

However, Apple could face a challenge in terms of allocation of merchant service charges with other payment participants, especially as regulators across the world cap interchange fees. Timetric's primary research has identified distinct points of view regarding the expansion of Apple Pay beyond the US. Some industry experts argue that low interchange fees outside the U.S., especially in Europe, will discourage Apple from entering these markets, while others stress that Apple is not expecting substantial profits from Apple Pay; the solution is primarily intended to decrease the commoditization of Apple's products.

Brief

The study offers business insights into Apple's mobile payment solution, Apple Pay:

- It examines factors contributing to adoption of Apple Pay along with challenges.

- It examines Apple Pay's impact on payment security.

- It explores whether merchants and consumers are ready to accept Apple Pay.

- It outlines its plausible impact on top market participants and competitors.

- It explores whether Apple Pay is a game changer for mobile payments and NFC.

Overview

- This industry report includes the challenging landscape for Apple Pay.

- It offers a comparable analysis of hardware-based secure element vs cloud-based host card emulation technology.

- It discusses impact of Apple Pay on main card schemes, issuers, POS vendors, merchant acquirers, mobile network operators and smartphone manufacturers.

- It examines the impact of EMV migration in the US.

Great reasons to purchase

- Gain understanding of innovation and the changing landscape in the overall payments market. Is Apple Pay likely to become a mainstream payment solution in North America (NA)?

- Understand how will Apple Pay affect consumer payments in Europe (EU) and the rest of the world.

- Gain insights into ambitious threats and alternatives from emerging, additional and potentially meaningful operators in the overall payments market.

- Gain an insight into the winners and losers in the additional environment.

- Understand how Apple Pay will affect payment technology requirements, industry standards, security and the global payments ecosystem.

Key Findings

- Apple Pay has attracted the interest of the payments industry and the public in mobile payments and NFC technology. Although it has not introduced a genuinely additional technology, it has been successful in combining existing technology including Secure Element, tokens and biometric authentication to expand a additional payment solution. From a marketing and distribution perspective, Apple Pay benefits greatly from Apple's brand and technology platform.

- Card transactions processed through Apple Pay are anticipated to be less prone to fraudulent activity than mag-stripe and EMV cards, as Apple Pay combines tokenization, chip, dynamic authorization codes, and biometric authentication. Banks in the U.S. have rallied to support Apple Pay, partly because of its security features. However, whether or not Apple Pay can significantly reduce fraud levels in card transactions outside the U.S. remains uncertain, due largely to the limited reach of iOS.

- The mobile payment ecosystem remains highly fragmented, with several additional entrants making inroads into the industry, but only a few operators a position to compete internationally. The introduction of Apple Pay is anticipated to lead NFC-based contactless payments to gradually polarize into iOS and Android-based solutions, with a limited number of service providers dominating the sector.

- While different sources suggest that Apple Pay is preparing for an worldwide service rollout in 2015, the mobile payments environment outside North America continent, and in particularly in Europe, is considerably various from that in the US, in unique in terms of interchange and NFC acceptance. Key challenges for Apple Pay in EU includes the EU's mounting pressure on interchange fees and distinct fraud dynamics of the US and Europe (EU).

- Field trials indicate that making payments through Apple Pay adds value to the consumer in the form of convenience. However, mobile payments will need to overcome consumer habits of using plastic cards and cash. Encouraging consumers to change old habits requires time and comprehensive consumer education, irrespective of the benefits the additional technology has to offer. Apple may need to increase incentives for Apple Pay adoptions beyond the convenience offered by the system.

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