Apple Pay, New and Secure, Wins Fight for Mobile Payments

First Apple Pay Purchase at Disney Store
Jordan Strauss/Invision/Disney Store/APApple Pay at work.
By Hal M. Bundrick

It's quite likely that in a few years, pulling out a credit card -– embedded chip or not –- will seem like a quaint, old-fashioned way to make a payment. Mobile payment tools, while currently the purview of mostly early adopters, are set to transform the payment process -- offering convenience and advanced security. It's also likely that a late arrival to the payment party will soon be the toast of the technology.

Apply Pay (AAPL), a payment option available for less than three months, is poised by the end of February to overtake the transaction volume of Google (GOOG) Wallet, which was launched in 2011, ITG Investment Research estimates.

But more importantly, Apple Pay could "pose a major threat" to the mobile payment kingpin, eBay's (EBAY) PayPal, according to ITG. Despite the fact that Apple Pay is still vertically bound to serve just its own customers and is supported by a "relatively limited list of merchants," the new service has advantages that PayPal may not be able to overcome.

Analyst Steve Weinstein believes that PayPal suffers from "a challenging relationship" with other companies involved in the payment process and can't offer the biometric security capabilities that Apple Pay can. Apple Pay also has the power of the brand's affinity and an ease of use that will be difficult for competitors to overcome.

Where Early Adopters Are Spending

The security issue is key. As consumers become more concerned about cybertheft and payment hacks, authorizing financial transactions with a quick biometric confirmation -– using a fingerprint, voice command or other personally identifying authentication –- may well become commonplace. That's an area where Apple has a big head start on the field of mobile payment providers.

ITG research, based on interviews with a proprietary consumer panel, discovered other signs of growing Apple adoption. Fully 60 percent of new users triggered Apple Pay mobile payments on multiple days in November, while new PayPal customers used the service on multiple days during the same time period just 20 percent of the time. Apple Pay customers used the service roughly 1.4 times a week during the period -- and at the same merchant for future transactions roughly two-thirds of the time. And once they use it, average Apple Pay consumers use the service for about 5.3 percent of all future card transactions and 2.3 percent of all future card dollars spent.

Perhaps most telling, the top five Apple Pay retailers are businesses with a high volume of repeat business. According to ITG, in November those top-volume merchants were Whole Foods Market (WFM), Walgreen (WBA), McDonald's (MCD), Panera Bread (PNRA) and Subway.
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