By Daisuke Wakabayashi and Greg Bensinger
Apple Inc. has lined up an impressive list of banks and
credit-card issuers to support its new mobile-payment service. Now
all it needs is more merchants, and customers.
Apple hopes its service, Apple Pay, will prompt shoppers to
ditch their wallet and make purchases with an iPhone. The system
relies on a technology known as near-field communication, or NFC,
that has had trouble winning acceptance from merchants.
Merchants must install a reader at their checkout line for
so-called tap-and-go payments. NFC readers are being used by fewer
than 10% of merchants, according to Gartner analyst Mark Hung.
Starting in October, Apple said iPhone owners will be able to
use Apple Pay at 220,000 U.S. locations, including McDonald's
Corp., Bloomingdale's and Macy's. By comparison, the Electronic
Transactions Association said more than nine million U.S. merchants
accept credit and debit cards.
"Apple has rallied the issuing bank side, but not the merchant
side," said Richard Crone, chief executive of Crone Consulting, a
payments advisory firm. "Many merchants who had NFC acceptance have
turned it off."
Best Buy Co., for example, installed NFC-enabled scanners in
many of its stores but switched them off in 2011 because the cost
of supporting the platform was too high, the companyspokesman
said.
The retailer has no plans to change course following Apple's
announcement.
In part, mobile payments have suffered from a classic
chicken-and-egg situation. Smaller merchants in particular were
reluctant to install the systems--which can cost $300 to $500 per
device--because few consumers were using them. Moreover, merchant
fees for mobile-payment systems can be higher than for plastic
cards, particularly for debit cards, Mr. Crone said.
Apple has a successful track record of helping to thrust
existing technologies or services into the mainstream. It did so
with touch-screen technology when it created the original iPhone.
It also popularized legal music downloads when it created iTunes
and allowed consumers to buy a song at a time instead of an entire
album.
NFC technology dates back more than a decade and has been hyped
as the gateway to enabling mobile payments. In 2011, Google Inc.
introduced Google Wallet, its NFC-linked payments service that has
been added to many smartphones running its Android operating
system, but that initiative has failed to gain much traction.
Apple will also benefit from good timing. Credit-card networks
are pushing retailers to install payment terminals that accept
cards embedded with a chip. If they fail to do so, the merchants,
instead of the banks, will be liable for any fraud stemming from
chip cards starting in October 2015.
In the process of upgrading the terminals, many merchants will
also include the contactless readers and thus will simultaneously
become NFC-payment ready.
The question remains whether Apple can get retailers to turn on
the NFC machines.
Some big merchants remain skeptical. Reed Luhtanen, Wal-Mart
Stores Inc.'s senior director of payments strategy confirmed
consumers won't be able to buy things at the world's largest
retailer with Apple Pay.
Best Buy and Wal-Mart are instead backing a retailer-owned
mobile technology group called Merchant Customer Exchange, which
also counts Target Corp. among its members.
MCX's payment service requires only a software download and can
be used on existing iPhones and Android devices, whereas Apple's is
only for the latest generation handset.
The group announced the launch of a mobile wallet application
called CurrentC, which it said will run as a pilot in certain
cities before being rolled out nationally in 2015.
CurrentC said it will link with customers' checking accounts,
retailer gift cards and select merchant-branded debit and credit
accounts but doesn't currently sync with traditional credit cards.
Unlike Apple Pay, CurrentC doesn't use NFC technology. Instead a
retailer scans a digital QR code on its smartphone app.
Checkout systems from startup Square Inc., Amazon.com Inc. and
PayPal aren't equipped to process NFC payments, meaning potentially
millions of mom-and-pop shops, taco trucks and corner stores won't
be accepting Apple Pay when it launches next month. Representatives
of the three companies said they had no immediate plans to enable
NFC.
Apple's announcement has stoked interest in the technology.
Revel Systems Inc., which provides software for checkout registers
at merchants such as Popeye's Louisiana Kitchen Inc., was flooded
with calls Tuesday from about 50 clients wondering how they could
enable NFC payments, said Chief Technology Officer Chris Ciabarra.
He said their NFC reader and software bundle costs $499, though he
said he hopes to lower the cost over time.
"The truth is, today, no one uses NFC," said Mr. Ciabarra,
noting just two of San Francisco-based Revel's customers use the
payment technology. "For this to take off, it has to start with
that reader device."
Silvio Tavares, chief executive of the CardLinx Association, a
payments industry group, said Apple has joined with merchants such
as Walgreens Co., Subway and Whole Foods Market Inc. where shoppers
make "everyday purchases" with the goal of getting consumers
accustomed to shopping with an iPhone or the Apple Watch. If enough
shoppers get used to buying things that way, other merchants may
feel pressured to open up to NFC and Apple Pay.
"You start to build the habit and then that's what builds the
tipping point," said Mr. Tavares. "If anyone can do it, Apple
can."
Robin Sidel, Shelly Banjo and Drew FitzGerald contributed to
this article.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and
Greg Bensinger at greg.bensinger@wsj.com
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