Still can't replace the old billfold.
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This article originally appeared in Inc.
You don’t need Apple Pay. Of course, I could say that about many other products Apple has succeeded in convincing you to love. But with the tech giant’s newest foray into the incestuous morass of mobile payments, Apple is taking on a particularly tricky challenge. (Yes, even more than with its ridiculously elaborate timepiece.)
I’ve long been a skeptic about mobile payments. Tech companies and big banks have been trying to make their "digital wallets" happen for years, with little luck. (Just ask Google, and that company formerly known as Isis.) Why construct an elaborate fix to something that’s not broken? Why bother with smartphones and thumbprints and buggy digital scanners at the checkout counter, when you could just swipe a piece of plastic and go?
"The core challenge Apple faces is that buying things with a credit card isn’t nearly as onerous a process as they make it out to be," as the New York Times adroitly summed up this week. And there’s an even better argument for Apple Pay skepticism in Thursday’s Wall Street Journal, which boiled the hurdle for Apple down to numbers.Get Slate in your inbox.
That is, 220,000 versus 9 million: the number of U.S. retailers where you can use Apple Pay starting in October, versus the number of places where you can currently use a credit or debit card. In other words, Apple Pay isn’t going to work at 97.6 percent of the places where you can shop in this country—and retailers aren’t exactly rushing to embrace the newest technology. Best Buy, for example, has installed the digital scanners that its checkout clerks would need to scan your iPhone 6, but "switched them off in 2011 because the cost of supporting the platform was too high" and "has no plans to change course following Apple's announcement," the WSJ reported.
That’s really the crux of the problem for Apple, and Google, and PayPal, and that Isis that President Obama isn’t promising to destroy. You can sell consumers any new kind of technology (or new ballad-rock album, for that matter) if you wrap it up with something they already love and plan to buy. But you can’t control how they use it, if they use it, or indeed if they can use it. Right now retailers are the ones who control how consumers use this kind of technology, and they are far from fully on board.
Businesses, especially startups, have several reasons to resist upgrading their technology. There’s the cost of installing the new scanners, and the cost of training staffers to use them. There’s the fact that many of the smallest businesses, the food trucks and the startups that rely on Square or Amazon or PayPal to accept credit cards, won’t be able to use Apple Pay. Those systems "aren't equipped to process NFC payments," the WSJ wrote, referring to the "near-field communication" technology used to scan the digital wallets on smartphones.
And then there are the potential increased costs to small businesses if Apple Pay takes off. Accepting credit and debit cards is already an expensive proposition for retailers, especially the small ones that don’t have a lot of negotiating power with the big banks and credit card processing companies. Retailers pay, on average, 2 percent of every sale in these so-called swipe fees, which are split between banks, networks like Visa and MasterCard, processors, and sometimes a whole host of other companies. Now Apple is coming in and asking for a piece of the action, too.
Bloomberg reports that banks will pay the tech company a fee for each Apple Pay transaction, cutting into the $$40 billion in profits that the banking industry collects from retailers every year. And if the banks and credit card companies are giving up some profits to Apple, how long do you think it will be before they start charging businesses higher swipe fees to make up the difference? That prospect won’t make retailers rush to embrace anything.
So the case against Apple Pay seems pretty easy to make—which isn’t to say there aren’t reasons the technology could eventually take off. The primary ones are security and convenience, though the former is a bit of an awkward conversation for Apple and CEO Tim Cook in the wake of iCloud’s implication in the celebrity photo-theft debacle.