It’s Wal-Mart versus Apple.

With Apple on Monday enabling its new mobile payment system Apple Pay, it is starting to roll out to 220,000 stores across the U.S., but the substantial majority of retailers — almost one million or so — are taking a wait-and-see approach.

They include Wal-Mart Stores Inc., which has its own rival system in the works. The retail giant has promoted an alternative mobile payment platform called the Merchant Customer Exchange, better known as CurrentC, that is beginning this year with pilot programs and expected to blanket the nation next year. Joining Wal-Mart in opting for CurrentC are ShopRite, Gap, Dick’s Sporting Goods, Meijer, Michael’s, Publix, Rite Aid, Bed, Bath & Beyond, Dillard’s, Lowe’s, Kohl’s, Sears, CVS, Target and more.

In addition to Sephora and Panera Bread, retailers and restaurant chains that have been enlisted by Apple Pay include Macy’s, Bloomingdale’s, Aéropostale, American Eagle Outfitters, Foot Locker, Urban Outfitters, Anthropologie, Disney Store, Duane Reade, McDonald’s, Staples, Subway, Walgreens and Whole Foods Market. Unlike Apple Pay, CurrentC disentangles retailers from credit cards and the hated fees credit-card companies charge retailers for credit-card transactions. It relies on digital QR codes in an app, not near-field communications or NFC, the wireless transaction technology that underpins Apple Pay, Google Wallet and Softcard. 

The mobile payments fragmentation caused by CurrentC retail partners that have a combined 110,000 locations could hinder general Apple Pay participation. On top of those retail partners, hundreds of thousands of shops dotting the country may stick to existing credit-card formats. If most of a shopper’s purchases are at Wal-Mart or mom-and-pop stores that don’t enact Apple Pay, what is his or her interest in using Apple Pay? That lack-of-scale problem has kept the volume of payments with Google Wallet, Softcard and Square Wallet, an option now out of the market, tiny. “Wal-Mart, with CurrentC, is adding more confusion into the marketplace,” said Paula Rosenblum, managing partner of RSR Research.

That confusion could, of course, be overcome by widespread adoption of Apple Pay or a competing mobile payment system, for that matter. Rosenblum notes, “The consumer drives the bus. Wal-Mart can say they won’t take Apple Pay, but, if the consumer decides that is how they want to shop, they will change their story.”

A tidal wave of consumers paying with Apple Pay will undoubtedly force retailers in its direction. They won’t want to lose money by not taking it. But there may be other reasons why retailers will commit to Apple Pay. Security is a big one. In unveiling Apple Pay, Eddy Cue, the company’s senior vice president of Internet software and services, said, “Security and privacy is at the core of Apple Pay. When you’re using Apple Pay in a store, restaurant or other merchant, cashiers will no longer see your name, credit-card number or security code, helping to reduce the potential for fraud. Apple doesn’t collect your purchase history, so we don’t know what you bought, where you bought it or how much you paid for it. And if your iPhone is lost or stolen, you can use Find My iPhone to quickly suspend payments from that device.”

Still, to convince the holdout retailers to sign up, the thunderous buzz generated by Apple isn’t enough. Consumers will actually have to use Apple Pay, a reverse from earlier iterations of digital wallets that have encountered an uphill battle to adoption. Retailers will have to be compelled by advantages Apple Pay offers, rather than just viewing it as another tool to cement their dependence on the credit-card companies.

The argument that consumers will embrace Apple Pay is straightforward and simple: It’s from Apple, and people love Apple. It’s a pretty persuasive argument. After all, Apple sold a record of more than 10 million iPhone 6 and iPhone 6 Plus models, which let users make purchases on American Express, MasterCard and Visa, with Apple Pay, in the three days following their Sept. 19 launch. “We have seen other wallet attempts, but Apple is Apple,” said Blaine Hurst, executive vice president of technology and transformation, at Panera Bread, a bakery, sandwich and salad chain that has permitted Google Wallet and Softcard, a joint venture between AT&T, T-Mobile and Verizon, and will permit Apple Pay. “They have a major impact on the marketplace in how we live every day. They will help write this story in a material way.”

Julie Bornstein, chief digital officer at Sephora, asserted she’s “confident about the service Apple Pay will provide our customers.” She elaborated, “Mobile is a given in our customers’ lives. They carry their phone everywhere they go and we’re constantly thinking of new ways to deliver the best mobile experience possible, both in-store and on-the-go. Extending that experience to payments was a natural next-step. When we’ve experimented with tech in our stores, we’ve found that technology that enables easier, faster or better shopping does really well. We expect to see the same with mobile payments.”

But not every company wins over customers based on popularity alone. Ask Amazon about the disappointing performance of the Amazon Fire phone. Rosenblum isn’t certain the power of Apple will be enough to conquer payments. “There are a lot of people that say now that Apple is in the game, it’s going to happen. I don’t see it,” she said. “I can’t find a single consumer-oriented study anywhere that shows consumers of any age, particularly Millennials, suggesting that they would adopt mobile payments if they had the opportunity to do so. Millennials tend to be credit averse, so the only mobile payments that they have adopted are like the ones from Starbucks that, at the end of the day, are prepaid cards.”

Rosenblum cited a survey of 2,503 college students by Balance Innovations, perhaps a biased party because it is a cash-management vendor, revealing that 16 percent reported they would use mobile payments all the time if mobile payments were widely available; 42 percent said they would use it somewhat more, and 28 percent stated they would not make more mobile payments. In a brief on digital wallets, Forrester Research analyst Denee Carrington sounded a warning by spotlighting the experience of Google Wallet. While consumer awareness of Google Wallet has been strong — 31 percent of online U.S. mobile phone users were aware of it, according to a Forrester survey — a meager 5 percent of mobile phone users aware of Google Wallet used it. “Simply put, the barriers to access and use [of] Google Wallet outweighed the potential benefits,” wrote Carrington. 

What Apple Pay provides is the opportunity for retailers to distance themselves from or offset the types of security breaches that have impacted Target, Neiman Marcus and Home Depot, among a growing list of companies. “It’s a well-thought-out approach to security on the consumer side, and that’s important. Apple doesn’t store your full credit-card number and doesn’t transmit it, and so those things allow it to eliminate a lot of the traditional security concerns,” said Zach Goldstein, chief executive officer of Thanx, a tech firm specializing in enhancing customer loyalty for retailers and restaurants. “Apple transmits through Apple Pay less data to merchants than those merchants used to get from credit cards.”

How attractive is the heightened security to retailers? Apparently not attractive enough to bring Target on board with Apple Pay’s initial push — and Rosenblum thinks that’s due to the consumer outrage over fraud not being overwhelming or extremely hurtful to retail balance sheets. “To tell you the truth, if Target hadn’t handled their breach so badly, I don’t think consumers would have cared. There is no evidence that, in any other data breach, consumers cared because let’s face it, they are not footing the bill,” she said.

Even without Apple Pay, retailers are transitioning by October 2015 toward a more secure approach to credit-card transactions by accepting EMV, an abbreviation for Europay, MasterCard and Visa, or chip-and-pin cards that don’t have easily replicable magnetic strips like those on credit cards broadly used in the U.S.

The increased security of Apple Pay could diminish an intriguing conceivable benefit of the mobile payment system: tracking consumer behavior from outside to inside stores via payments on phones. With plastic credit cards, Adam Foroughi, ceo of AppLovin, a firm that works to optimize mobile ads, explained, “If a consumer saw a [mobile] advertisement for a new pair of shoes and ended up walking into the store and bought a pair of shoes, we have no idea what happened there. [Using Apple Pay,] brands and merchants could start understanding consumer purchase patterns in the real world and compare those to the digital world.…That is going to be the biggest unknown and also the biggest opportunity. Apple Pay is just rolling out and it is unclear how measurement is going to be done and how data is going to be retrieved.”

He imagined, though, that if information linking Apple Pay purchases to consumers and stores becomes accessible, Apple Pay could help retailers put out effective, personalized mobile ads. “The marketing would be relevant to everything you have done with that brand no matter how you interact with that brand,” said Foroughi.

Furthermore, Apple Pay could lift e-commerce sales on mobile devices. Shoppers can use Apple Pay, which analytics platform Custora estimates is responsible for 53.3 percent of mobile shopping orders, to make purchases on select apps, notably those from Chairish, Fancy, Groupon, HotelTonight, Houzz, Instacart, Lyft, OpenTable, Panera Bread, Spring, Staples, Target and Uber at launch, making occasionally cumbersome app checkouts less so.

Tim Weingarten, founder and ceo of The Hunt, a social shopping app that’s built a community to identify coveted clothing, believes Apple Pay could strengthen mobile sales if it were connected to mobile Web sites, where the bulk of transactions on mobile phones still occur. “Conversion rates within the mobile Web are substantially less than desktop Web,” said Weingarten. “You need to improve conversion rates or get more traffic in order to grow. Apple Pay is not going to affect traffic, but it should improve conversion rates, reduce cart abandonments and make the experience within the mobile browser more consumer-friendly.”

Not every retail procedure will be smoother with Apple Pay. The system allows users to store up to eight credit or debit cards, but, if a retailer’s credit card is not among the eight, that retailer could lose out on transactions. Additionally, it’s anticipated Apple Pay could put a dent in loyalty programs contingent upon plastic loyalty cards as digital wallet users become accustomed to paying only using their phones. “Consumers are likely to churn out of loyalty programs at a higher rate because now they feel more invasive,” speculated Goldstein.
A few retailers are already addressing that problem by unveiling digital payment and promotion solutions. Macy’s My Wallet, for instance, allows shoppers to save special deals, their Macy’s credit card and third-party credit cards. Bloomingdale’s bWallet stores special offers and reward cards.

At Panera Bread, where around half of transactions involve the eatery’s rewards, Hurst acknowledged that a “remaining friction point” of Apple Pay adoption will be the integration of the loyalty program. He doesn’t foresee that being a major stumbling block inhibiting Apple Pay, though. “For me, as a guest, I don’t think that is going to get in my way,” said Hurst.

In fact, he argued that Apple Pay’s rollout signals the beginning of the end of traditional plastic credit cards. “My belief is that it will be adopted faster than any other wallet solution, but how much faster is yet to be seen,” said Hurst. “I believe it has a shot at changing the way you pay in the future or at least in setting a standard.”

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