Retail skirmish blocks Apple Pay at checkout line

29 Oct 2014 | Author: | No comments yet »

Apple Pay Review: Easy to Use, but Still Hard to Find.

Apple’s mobile payment technology ran into a roadblock a week after its introduction as CVS and Rite Aid, members of a consortium developing a competing system, disabled Apple Pay in their drugstores.

Rite Aid and CVS weren’t official Apple Pay launch partners, but shoppers armed with new iPhones found that the chains had near-field communication card readers that were compatible with the new mobile payment system—at least for a few days.Last week, iPhone 6 owners got Apple Pay, a free service that lets you buy things at stores and inside apps using a digital version of your credit card and a thumbprint.Macy’s, Bloomingdale’s and Toys R Us, were among the first retailers to accept Apple’s new payment system last week, letting some customers check out by flashing their new iPhones near a reader at the register.

“Retailers (that are part of Merchant Customer Exchange) are certainly going to give it a go on their own, they spent the last few years and money developing this,” said eMarketer analyst Bryan Yeager. “Ultimately if there’s enough consumer demand for it in the long run, maybe they will accept Apple Pay, but they’re very much intent on trying to make a go at their own mobile wallet.” Although nascent, the appetite for mobile payment is growing.Apple Pay launched on October 20, and while many iPhone users enthusiastically adopted it, even purposefully making purchases they didn’t need just to see it in action, some retailers have turned away from the new technology.

On Monday, Apple CEO Tim Cook took to the stage at the WSJD Live Global Technology Conference and addressed this coming battle of digital payments directly. But a consortium of retailers called Merchant Customer Exchange plans to offer a rival mobile payment system next year which could direct debit customers’ checking accounts, instead of using a credit card. Apple’s entry into mobile payments follows efforts by Square, Google and Softcard — a wallet application backed by the three largest U.S. wireless carriers — that all failed to gain widespread acceptance. Details of how CurrentC will work are still fuzzy, but we know that the solution is a mobile app that bypasses credit cards—and the associated merchant fees—by linking directly to customers’ checking or savings accounts. Security expert Nick Arnott was able to discover just some of the information CurrentC plans to collect, including location data and movement. “With CurrentC, you’re not the customer—you’re the product being sold,” said Arnott.

Macy’s credit cards — which give customers access to special coupons and promotions — account for half of the department store’s sales, said spokesman Orlando Veras. There are a few key differences, as outlined on the CurrentC website: A new QR code is generated for each transaction, but CurrentC stores your encrypted financial information in the cloud.

By cutting cardholders out of Apple Pay’s launch, repeat customers will have to choose whether they want to be a part of the next big thing in shopping or spend more. Apple doesn’t store your account information at all—instead, the company has partnered with more than 500 banks to issue device account numbers that are unique to each card and each iPhone.

Those terminals usually also have the “near-field communication” capability to work with Apple Pay, Google Wallet and Softcard systems, but they aren’t automatically enabled to work with NFC. Right now, digital wallets rely on Near Field Communication (NFC) readers, but CurrentC will rely on QR codes instead (seemingly a step backwards in technology.) A spokesperson for Walmart offered Business Insider this explanation, “There are certainly a lot of compelling technologies being developed, which is great for the mobile-commerce industry as a whole… Instead of holding your phone near the terminal and authenticating your fingerprint with Touch ID, CurrentC will require you to open the app, authenticate the transaction with a four-digit pin, and generate a QR code to hand off to the cashier. Owners of the new smartphones sign up by taking a photo of their bank-issued credit or debit card using their phone’s camera or add it using iTunes. MCX’s members believe merchants are in the best position to provide a mobile solution because of their deep insights into their customers’ shopping and buying experiences.” However, the underlying reason for turning to their own payment platform still rests on credit card tensions.

It is worked with the major banks and credit card companies — Visa, MasterCard and American Express — that Apple says account for more than 80 percent of U.S. credit card purchases, allowing the iPhone maker to piggyback on their checkout systems. While CurrentC is being positioned as an NFC competitor, the QR code technology has already been criticized as an old-school, inefficient, and insecure way to pay.

Though TechCrunch reported dozens of retailers are already on board for CurrentC, controlling over 100,000 retail locations and a trillion dollars a year in transactions, Apple Pay launched first and is already in about 220,000 retail locations, with six major banks on board, and over 500 financial institutions set to join in 2015. In hopes of protecting their bottom line, retailers are willing to force customers into using a less attractive, potentially less secure, e-payment system, but a vendetta against credit cards may not be the best way to get customers on board.

To change our habits of paying with cash and plastic, Apple Pay needs more capabilities, like standing in for all of your buy-10-get-1-free punch cards that would give you more reasons to pay with a phone. You only have to do this once: The app will prompt you to add one of your existing credit cards by typing in its digits or snapping a photo. (Find more setup details here.) Apple Pay works with most existing major credit and debit cards, which you can add to your phone in a matter of minutes. The exceptions are cards from some smaller banks, store-branded cards and corporate cards. (Apple is working to fill those holes.) At the store, look for an Apple Pay logo, or more likely the universal contactless payment logo—a sideways Wi-Fi symbol with a hand approaching it. Apple will gain $89 million in “high margin fees from transactions” in 2015, with the possibility of that increasing to $310 million in 2016 — still less than 0.5 percent of the company’s operating income in 2016, Gene Munster, senior research analyst at Piper Jaffray & Co. wrote in a note. According to a new report from The Information (behind a paywall), the company is looking at ways to replace security cards and public transit cards with iPhones.

When a customer makes a purchase on a store-branded credit card at the issuing store, the retailer pays a lower transaction fee, according to analysts. Despite the likelihood there is less money in these transactions, Apple has worked out some deals with companies offering branded cards, including with Disney and its Visa card. Nobody else’s finger will work unless you’ve registered that person’s print on your phone. (I tried.) At most stores, that’s it—you’re done.

Veras, the Macy’s spokesman, said the department store is “working with Apple on adding this functionality in the future, however, there is no current timeline set for when it will be available.” Mobile point-of-sale payments remain a relatively small market, totaling $11.1 million last year in the U.S., according to research firm eMarketer. Customers at Whole Foods have welcomed Apple Pay — mainly because it shortens lines — said Angela Lorenzen, vice president of operations of the grocery’s Northern California region. Vital to its adoption will be the success of Apple and its partners in convincing consumers that the technology is safe and secure — and whether store employees can easily explain how it works, analysts said.

This week, when The Chronicle called several participating retail stores to ask whether branded credit cards can be uploaded to Apple Pay, some employees didn’t know what Apple Pay was. For department stores, it could wind up alienating the very shoppers they are desperate to keep — those who choose to make purchases in person, not online. Jermaine Mills, a 27-year-old technology consultant who says he spends thousands a month at Macy’s, was disappointed when Apple Pay rejected his store-branded card. Its response underscores one of the best safety features of Apple Pay: Because it is tied to a regular credit-card account, you’re not liable for purchases you didn’t make. I’d consider it more useful if Apple Pay could address my George Costanza-style exploding wallet, so overstuffed with junk it makes me sit at a tilt.

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