When Apple first announced Apple Pay at its iPhone-focused media event in September, industry watchers’ predictions about the potential of the mobile payments service ranged from highly optimistic to tepid. Piper Jaffray’s Gene Munster told Bloomberg that “what [Apple] is doing in payments is going to be game changing.” On the other side, legal expert Adam Levitin pointed out that Apple Pay could potentially make the California-based company subject to some restrictive financial regulations that could cause difficulties for Apple down the line.
Of course, whether Apple Pay can be called a game-changing success or rare misstep for the iPhone maker will become much clearer in the months and years to come. That being said, a recent research report from Investment Technology Group (ITG) offers some interesting insights on the impact that Apple Pay has already had on consumers and merchants in the two months since it made its debut. Here are three key research findings provided by ITG that demonstrate how Apple Pay has already started to transform the mobile payments industry.
Apple Pay vs. Google Wallet and PayPal
“Mobile payments” is often used as a catch-all term to describe anything related to mobile technology and payments. However, this term can encompass everything from mobile-powered cash registers like Square, to mobile money transfers. Since Apple Pay allows the iPhone to function as a digital wallet for a user’s cards and relies on near field communication (NFC) for making in-store payments, it is perhaps most comparable to Google Wallet, which operates in a similar way.
According to ITG, Apple Pay accounted for 1% of all digital payment dollars during the month of November. In comparison, Google Wallet captured 4% of digital payment dollars over the same time period. As noted by ITG, Apple Pay’s share of total digital payment dollars is impressive for several reasons.
First, unlike Google Wallet which is available on both iOS and Android devices, Apple Pay is currently limited solely to the iPhone 6 and the iPhone 6 Plus for payments in physical stores (and certain other iOS-based devices for in-app purchases). Second, Google Wallet has had a three-year head start on Apple Pay since it launched in 2011, while Apple Pay has only been out since October 2014.
Since mobile payments industry leader PayPal doesn’t offer an NFC-based contactless payment system like Apple Pay and Google Wallet, making one-to-one comparisons with Apple and Google’s digital wallet solutions is problematic. PayPal is still developing its own hands-free payments system called PayPal Beacon that relies on Bluetooth technology and doesn’t require users to pull out their phones. According to ITG data cited by MarketWatch, PayPal accounted for 78% of digital payment dollars in November, far more than Apple Pay’s 1% share.
However, PayPal’s current lack of a mobile payment solution that doesn’t require the customer to open a smartphone app may be hurting its long-term prospects. According to ITG data, Apple Pay appears to have more traction with consumers than PayPal since 60% of new Apple Pay customers used the service multiple times throughout November. On the other hand, only 20% of new PayPal customers used the service multiple times during the same time period.
Apple Pay attracts repeat customers
As previously noted in the comparison with PayPal, customers who use Apple Pay for the first time tend to keep using it. According to ITG data, Apple Pay customers use the service an average of 1.4 times per week. Merchants that support Apple Pay can also rely on customers to keep using the service. ITG found that about 66% of customers who made an Apple Pay transaction at a merchant used it again on future visits.
Despite being a brand new service with limited availability, Apple Pay has also already impacted the way consumers pay for products and services. ITG noted that after the service is adopted by a user, the average Apple Pay customer uses the service for 5.3% of future card transactions and 2.3% of future dollars spent.
Apple Pay spending is significant despite limited availability
Soon after Apple Pay launched on October 20, it ran into opposition from many retailers who were interested in promoting their own mobile payment solutions. Some of the biggest names in retail, such as Walmart, Best Buy, and Kmart, are members of the Merchant Customer Exchange (MCX), an organization that is developing a competing mobile payments system called CurrentC. Despite these major holdouts, Apple Pay has been making significant inroads at the merchants that have adopted the service.
ITG provided a list of the top Apple Pay retailers and a breakdown of the percentage of Apple Pay transactions and dollars at each one. Organic food supermarket chain Whole Foods has so far accounted for the majority of both Apple Pay transactions (20%) and total dollars spent (28%). Drugstore chain Walgreens took the second largest share of Apple Pay transactions and dollars at 19% and 12%, respectively. McDonald’s ranked third, followed by Panera Bread and Subway.
Walgreens’ significant share of Apple Pay customers’ business is interesting to note since two of its drugstore rivals, CVS and Rite Aid, ignited a controversy with Apple users when they disabled all NFC readers at their stores soon after Apple Pay made its debut. The move was presumably made in support of the MCX-backed CurrentC system that is still in development.
Another interesting statistic to note in ITG’s data is the large percentage of Apple Pay transactions and dollars that are concentrated at the top five retailers. A total of 58% of all Apple Pay transactions and 45% of all Apple Pay dollars were funneled through the top five retailers. This may simply be due to the limited availability of Apple Pay or it may be a reflection of how well these retailers were able to implement the new system.
Based on its research, ITG concluded that “Apple Pay has the ability to significantly transform the mobile payment space” that is expected to grow to $142 billion in the U.S. by 2019, according to Forrester Research. Although Apple Pay still lags far behind industry leader PayPal, the mobile payments system has performed quite strongly when compared to similarly structured services like Google Wallet. While it’s not clear if Apple Pay can be called a game-changing success yet, it definitely appears to be moving that direction.
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