Author: Monica Shui
New York, NY
Did you ever imagine that one day, you could check out at the grocery store with nothing but your iPhone and your finger pressed firmly on the fingerprint scanner? Well, the launch of Apple Pay has just made your dreams come true. Apple Pay, which is expected to reshape the payment industry, has been introduced to the world. Consumers and retailers alike have been debating the pros and cons of this new payment mechanism.
The success of Apple Pay depends on whether people will change their habits of payment following this technological advance. The results are uncertain. This may mirror past uncertainty over whether credit and debit cards would replace cash and checks. It took years for debit and credit cards to infiltrate daily life, but now everyone accepts cards as a routine way to make payments. Therefore, it is highly probable that people will adapt to these new methods of payment just as they adapted to plastic cards. However, we should not jump to conclusions without a little more investigation.
Apple Pay, a payment mechanism designed to replace all conventional payment mechanisms, may face strong resistance from credit card users. The proliferation of plastic cards such as credit cards is partly due to the inconvenience of carrying a large wad of cash and the hassle of writing a check. The question arises: Can Apple Pay beat the convenient credit card payment method?
First, merchants such as Walmart and Rite Aid want to maintain the status quo. They have a long-established hate-love relationship with Visa and MasterCard. The 2% transaction fees have negatively affected these merchants’ profit margins. The introduction of Apple Pay does not solve the feud between wholesalers and credit card issuers; nevertheless, Apple intends to tap into the payment industry and hopes to one day grab profits as Visa and MasterCard do. Without support from large merchants, the adoption process will suffer.
Additionally, some retailers are not satisfied with Apple Pay because its anonymity feature hampers their ability to collect customers’ personal information. After all, retailers want to introduce loyal customers to programs that boost sales rather than protecting customers’ privacy. These objections from merchants will definitely impede the adoption of Apple Pay as a mainstream payment method.
What marginal benefits do customers get from switching to Apple Pay? Unless customers are obsessed with defending their privacy, the marginal benefit from using Apple Pay is minimal. It does not speed up the paying process given that the “swipe and go” credit card feature already exists. Nevertheless, there is one positive aspect for both merchants and customers: if they are already equipped with an iPhone or iPad, the cost of switching to Apple Pay is extremely low. The network effect may improve Apple Pay’s favor.
As stated above, history tells us that people will eventually change their payment habits, given a certain amount of time. However, the hastening of the adoption process depends on Apple’s next move. At present, Apple is trying to leverage its large user populations to modify people’s traditional payment behavior. The final results are yet to come.
Author: Monica Shui
Date: November 7th, 2014