Looking to handicap Apple Pay's chances at success? Look elsewhere around the globe
Apple Pay officially launched today ushering the US squarely into the early 2000s when it comes to contactless mobile payments. I say this not to suggest that Apple Pay isn’t an innovative and potentially-transformative service – it is – but, rather, to illustrate that much of the rest of the world has been paying for goods and services using their phones for years now.
Case in point, while living in Seoul South Korea in 2005 and 2006, something very similar to Apple Pay was at the heart of my daily routine. No, Steve Jobs had not yet given the world the iPhone. There certainly was no app store, yet. And no, biometric security a la Apple’s TouchID was not something that the featured prominently on many consumer mobile devices. And yet, contactless mobile payments were already ubiquitous in this technologically progressive market. At the time, they were powered by NFC-enabled feature phones and special secure element-containing SIM cards. More recently, the country has adopted app-based solutions. And Apple Pay, powered by the iPhone 6 and soon the Apple Watch, has taken things a step further. But the idea of leaving your wallet at home is at the end of a decade-long test drive elsewhere around the globe.
The most popular use case for mobile payments in Korea has always been transit, with consumers swiping their phones to pay for subways, buses, and taxis. Thanks to arrangements with Korean mobile carriers, the charges can simply be appended to the consumers’ monthly cellphone bill. But plenty of other merchants from fast food restaurants and coffee shops to vending machines have all offered “swipe to pay” options for several years.
The point of mentioning this is simply to illustrate that while the US may be entering uncharted territory, given the limited experience of both merchants and consumers in this country with similar technology, there exist prior examples that demonstrate how successful, and frankly mundane, contactless mobile payments can be.
What the US has lacked in the past is a “champion,” both to drive contactless payments through the bureaucratic quagmire that is the banking system, and to do a similar kind of heavy lifting to convince consumers that it’s something that they should be excited to adopt. If the last decade has taught us anything, it’s combining this type of high-level negotiation, consensus building, and marketing is exactly what Apple excels at.
I’ve previously discussed the technological and regulatory factors that are working in Apple’s favor when it comes to driving adoption of the NFC-enabled payment terminals at the merchant level. And with the iPhone 6 and 6 Plus launch turning out to be the most successful in Apple history, an installed-base of NFC-capable consumer mobile devices appears to be well underway as well. Finally, at launch Apple has lined up partnerships with Macy’s, McDonald’s, Walgreens, Staples, Disney, and several other major retailers, suggesting that there will be no shortages of locations for consumers to test out this new payment mechanism – notably absent, however, are many of the world’s largest retailers like Wal-Mart, Safeway, and CVS, but this could change if Apple Pay adoption is as rabid as many observers expect.
Each of the above elements is crucial, and frankly foundational, in convincing the various constituents in the payments hierarchy to spend the money, time, and energy required to adopt a new technology. This is the first time that anyone has managed to assemble the necessary pieces to make contactless mobile payments work in the US.
One advantage that South Korea and many other nations have over the US in the rollout and adoption of new technologies like NFC and contactless payments (neither of which are technically “new”) has to do with scale and density. Twenty percent of Korea’s entire population, and nearly all of its multi-national companies are located in Seoul. This makes it relatively easy, by comparison to the larger and more spread out US, to deploy the necessary infrastructure (in this case NFC payment terminals) to support new technologies. It's the same reason why Korea routinely bests the rest of the world in wired and mobile broadband speeds.
Also, while Korea is technically a democracy, the government still plays a major role in business and the national economy – and further, the government is highly influenced by the Chaebol, or large family owned companies like Samsung, Hyundai, and Lotte. In this sense, if the these companies, and by extension the government, feels it “important” that the nation adopt a new technology, adopt it the country shall.
There’s no similar driving force in the US, but Apple is about as close as we have. Apple isn't the government and it can't order change. But it can sure make change seem sexy. Rather than forcing consumers and relevant industries to adopt new technologies, Apple has proven itself capable, time and again, of convincing us we should want to do so. Like MP3 players, smartphones, and tablets before them, mobile payments were not new at the time that Apple entered the category. But prior to its involvement, they were largely irrelevant to the majority of the consumer market. Look no further than the headlines across major media over the last month and it's clear that's no longer the case. Adoption will take time, but curiosity has certainly been piqued. That's a major first step.
Looking beyond Korea, Kenya has been one of the pioneers of mobile payments, with a majority consumers across the country using the feature-phone (typically pre-paid)-based M-Pesa currency to pay for goods and services. The technology has since expanded to Europe. Elsewhere in Africa and Latin America, cell phone minutes have taken on a similar currency-like role. Unlike in Korea, where technology adoption can be driven top down, mobile payment in these countries found adoption largely out of necessity. In many emerging markets where credit cards and basic banking services are largely absent, the mobile phone has become the lowest common denominator other than cash among many consumers and merchants. Also, in cases where local currencies are unstable, suffering from rapid inflation or other macro-economic pressures, a digital alternative can be a welcome salvo.
These are only a few examples of the ways the US is playing catch up when it comes to mobile payments. With this as the backdrop, this week’s Apple Pay launch and the subsequent rollout should take on a different light. Rather than viewing this as a cutting edge experiment about what’s possible in a smartphone dominated world, what we’re really witnessing is the balance of power tipping, ever so slightly, between the forces driving progress in the technology and financial services sectors, and those pushing for the status quo. As has been the case many times before, Apple is the one tipping the scale.
I anticipate that Apple Pay will be widely successful in making mobile payments relevant for the majority of society. But its impact won't be limited to iDevice user. Rather, Apple's success will result in a dramatic uptick in both innovation and market adoption of new payment technologies.
For those more skeptical, remember that the rest of the world has already proven this to be a good idea, whether we realize it or not.