Analysts: Apple Pay will help spur wider usage of mobile payments

Softcard, the mobile payments company recently rebranded from Isis, said it is working with Apple (NASDAQ: AAPL) to enable its own solution on the iPhone, just as Apple unveiled its own mobile payments program, Apple Pay. Although Softcard's announcement could be seen as a way to maintain its relevance now that Apple will offer a competing solution, the news underscores the idea that Apple Pay will spur consumer and retailer interest and adoption in Near Field Communication technology and mobile payments, according to analysts and industry players.

Softcard, which is backed by Verizon Wireless (NYSE: VZ), AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS), is "actively working with Apple to enable Softcard on the iPhone in 2015--using an integrated secure SIM-based hardware solution," according Softcard CEO Michael Abbott.

"When our company was founded, our vision was to develop a simple wallet app that consumers could use on any device, anywhere with any card. To deliver on that promise, we selected NFC as the best technology that was secure, simple and open to innovation," Abbott noted in a brief blog post. "We think that today's announcement by Apple to support NFC is very significant and sets the stage for rapid scale adoption of mobile commerce."

Apple has signed deals with Visa, MasterCard and American Express for its mobile payments program, which will launch in October and use NFC technology, embedded in the top of Apple's new iPhone 6 and 6 Plus. Apple is also working with major banks in the U.S. for the service, including Bank of America, Capital One, Chase, Citibank and Wells Fargo. The solution will work across more than 220,000 merchants nationwide, Apple said, including Duane Reade, Macy's, McDonald's, Sephora, Staples, Subway, Walgreens and Whole Foods.

Apple went out of its way to reassure consumers over security: The company said users' credit card numbers are not given to the merchant and instead the service uses a one-time payment number and a "dynamic security code" in order to protect users' financial data. The solution uses the phones' Secure Element chip and Touch ID, Apple's fingerprint sensor, to confirm transactions.

Analysts said Apple's enthusiastic embrace of mobile payments will make consumers think it is something they should embrace as well. Indeed, although Apple Pay represents a new mobile payments solution that could detract from Softcard, Google (NASDAQ: GOOG) Wallet and others, analysts said that Apple's move may help drive adoption of mobile payments generally.

"Ovum believes Apple will prove effective at marketing mobile payments to consumers, not as a technology but as something that will make paying for goods and services with your phone fast, easy and even fun," Ovum analyst Eden Zoller said. "When Apple introduces cool features on the iPhone people tend to use them, which is critical for the future of NFC as an enabling technology. If consumers start using NFC for proximity payments then merchants will be more prepared to invest in it, a key factor that has held NFC back. Apple was at pains to stress the security of its new m-payment services, although we would have liked to have seen more concrete details on this front. But the fact that Apple is underscoring security from the start is important as concerns on this front are still the biggest show stoppers for consumers when it comes to m-payments."

What may help retailers, Apple and mobile payments more broadly is that Apple is not looking to get a cut of the transaction revenue. "Apple's approach is to improve the stickiness of its platform by creating a seamless payment experience with robust security linked to biometrics through its iPhone Touch ID," Analysys Mason analyst John Abraham said. "This runs against the tide of other payment initiatives by several CSPs and some others, that was primarily aimed at becoming a new revenue stream."

NFC Forum Executive Director Paula Hunter noted that NFC adoption is higher in Europe and Asia than in the U.S. "I think retailers and other solution providers were hesitant to going to into the marketplace until they could reach the highest possible percentage of smartphone users," she said. She said Apple's focus on security and on getting merchant partners to train their employees to support Apple Pay will be crucial to driving consumer adoption.

"I think it's a real tipping point," she said. "There's no question that Apple is a very savvy consumer marketer. When they decide to invest in an initiative they put a lot behind it."

Yet not everyone is convinced that Apple Pay will spur mobile payment adoption. Will Graylin, CEO of LoopPay, a competing mobile wallet solution, said NFC-based payment models haven't gotten much traction so far, and that retailers are unlikely to change their point of sale terminals for Apple Pay. "There are more than 270 million NFC smartphones in the market, yet we still cannot find one single Google Wallet or Softcard (Isis Wallet) user relying on their mobile wallet for everyday payments," he said. "If 1.75 billion smartphone users--all of whom have QR code capabilities in their phones today--have not already convinced merchants to change their POS systems to accept QR code wallets, putting NFC on the iPhone 6 will not get them to change either."

Wells Fargo analysts Maynard Um said Apple's announcement "does not change our thinking that networks, issuers and acquirers will not be materially affected by the Apple Pay introduction. Regarding PayPal, it is not clear whether it will have any role in Apple Pay, especially for in-app purchases. Apple's sizable smartphone market share, loyal users and iTunes card accounts could no doubt make it a significant player in the mobile wallet marketplace, potentially limiting the opportunity for PayPal (and others)."

For more:
- see this Softcard post
- see this CNET article

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