First-time success rate of my Apple Pay transactions today: 0%

Yes, you did read this right – today I could not complete a single Apple Pay transaction successfully first time. This was my experience today:
  • I tried using Apple Pay five times – four times to get in and out of the London transport network and once at a coffee shop to buy an espresso.
  • Not once did I manage to complete the transaction right away.
  • Only once I could complete the transaction via the fingerprint. And before you accuse me of sweaty fingers, on all occasions I made extra efforts to wipe clean my phone’s TouchID reader and my fingers before approaching the terminal. And while I did have some issues with TouchID in the past, now the fingerprint unlocks the phone just fine most of the time.
  • Three other times, I had to type in my password, which then completed the transaction.
  • I could not get my coffee on Apple Pay at all – no matter what I did, the transaction would not go through. My default card is Amex, so I asked the merchant if they accepted Amex cards in the first place (I couldn’t see any obvious signs that they did). He confirmed that they accepted Amex, but not if the card was contactless! Which I guess explains my lack of success in that instance, but there was no way of me knowing it in advance – the shop clearly had contactless terminals, so I assumed my Amex inside Apple Pay would work just fine. In the end, I embarrassingly put my phone away and paid cash.
OK, I admit, the sample size is not big – only five transactions and I haven’t tried a diverse POS environment (TfL and a coffee shop), so maybe I’ve just been unlucky. But it’s not the first time this is happening to me. I already highlighted my trepidation of going up with Apple Pay to the tube gates in an earlier blog. And I had other bad experiences: after trying to pay with Apple Pay and failing at a local Co-op shop, I was told that I couldn’t just use a plastic contactless card or pay by cash – I had to insert my actual Amex card into the reader and type in the PIN code to complete the transaction. Really?? Looks like I am not alone struggling with Apple Pay in the UK, as this Twitter conversation demonstrates: I also have a Visa debit card registered with Apple Pay, so I will try it out as well, but based on Richard’s comment, it doesn’t look like it’s a card type-specific issue at the moment… I love the idea of Apple Pay and easy payments by mobile phone. And I know that people like Jeremy and Richard are just as passionate about payments as I am, so we will continue to persevere and keep trying. But what will a “normal” consumer do if they have a bad experience? Will they be excited enough to come back and try again or will they just give up on mobile payments before they had a chance to succeed? I hope they don’t, but these early Apple Pay glitches clearly show how difficult it is to create a truly great customer experience in payments, especially at the POS.

Why I won’t be using Apple Pay during rush hour on London transport

I am finally a proud user of Apple Pay! It came to the UK on July 14th while I was away on holiday, but I managed to set up my first card even while I was abroad. And I was very proud and pleased when I got back and completed my first Apple Pay transaction. My experience has been more or less as expected. I got an email from American Express announcing that Apple Pay is available and suggesting that I should add my card to it. I have been using my Amex for iTunes, so adding it to Apple Pay was relatively straightforward. Somewhat unexpectedly, I now also get notifications on the phone for all transactions, including those made with a card – I would have thought Passbook would only have my Apple Pay transactions, but I guess it does make more sense to see all transactions on the card in the same place. I also added a debit card issued by my bank. The bank also promoted Apple Pay to me, and when I logged into my mobile banking app, Apple Pay was featured prominently at the top of the “home screen.” Clicking on the banner took me to the screen within the bank app which explained about Apple Pay and had an “Add Card” button. Given that I was already inside the bank’s app having authenticated myself via TouchID, I was expecting that this button would give me a list of the bank issued cards I have and I could add any of them to Apple Pay by just clicking on it. Somewhat disappointingly, I was taken out of the bank’s environment into the regular Apple Pay “add card” process and had to scan my card, wait for the text message with a security code to arrive, and set it up just like I would have done with any other card. I can imagine that what I wanted is perhaps challenging technically, but it still seemed like an opportunity missed to “surprise and delight” me as a customer. When everything works as expected, the transaction experience is brilliant. However, I already expressed my concerns about the reliability of TouchID on these pages before, and they proved to be true – TouchID does not always work for me when trying to use Apple Pay. While this is not much of an issue in a retail setting, it is not something you want when fighting the crowds to get on a tube or train platform during rush hour in London. As Transport for London confirmed in response to a number of complaints about over-charging, you have to touch in and out with the same device throughout the day to ensure the correct fare is charged; touching in with Apple Pay and out with a card or Apple Watch might result in being charged twice, even though all payments might eventually come out from the same card. The other thing is that Apple Pay quickly conditions you to getting transactions confirmed on the phone. Because TfL has daily and weekly caps, it cannot confirm each transaction instantly. Instead, I was charged 10p when I touched in with Apple Pay, with the balance for the day’s travel being charged to my card much later. While this is understandable and a minor gripe, it still contrasts with the experience of other transactions. None of this is TfL’s fault, which deserves plaudits for continuing to improve and give options to how we pay for travel. However, while I will definitely continue to use Apple Pay at the retailers, I am going to stick with a tried and tested Oyster card or a bank contactless card when travelling in London. It is simply not worth fretting every time I approach the gates whether the technology will work at the speed needed to keep the crowds flowing.

Cashless Britain – not coming to a town near you soon

There have been a number of reports in the UK since the beginning of the year heralding a cashless Britain, suggesting that cash “dies” this week. Of course, I’m being somewhat tongue in cheek, but it was suggested that February 2015 would be the last month that cash was king. That’s true in many ways – the share of cash on a total transactions basis will drop below 50% for the first time in the UK this year. But that doesn’t really tell the whole story. Firstly, “not cash” isn’t a single payments type of course. There are debit and credit cards, ACH payments,  still (shudder) some cheques. Fact 1 – by volume of transactions, cash is by far the most dominant, as at 50% share, it’s obviously the same size as all the other payment types …combined. So cash isn’t dead, and not even mildly under the weather! Secondly, the decline isn’t quite as dramatic as it may first seem. There are lots of new payment occasions being created (iTunes, mobile phone subscriptions, cable TV etc) that are electronic only. And conversion from cheque to direct debit generally sees an increase in payment volumes (ie quarterly cheques becoming monthly direct debit). Fact 2 The net result is significant growth in the overall size of the pie, biased to electronic payments – yet the share of cash has only decline by a few percentage points rather than the significant drop implied. This is particularly important to remember in the coming months. Early indications suggest a significant increase in contactless is coming. Fact 3 It’s a migration from Oyster that will drive massive contactless growth this year, rather take-up of contactless. This is important as Oyster had already forced a conversion from cash, with individual cash transaction (ie for each journey) into a single top-up transaction. The switch to contactless is unbundling this back into individual transactions, albeit applying a daily cap. We’re not saying that contactless isn’t going to grow impressively, just we mustn’t simply look at the headline numbers and draw conclusions. It’s not all negative. That Oyster habit converted to cards will help create a contactless habit which will spread. Coupled with the raising of the limit of £30, and with many cash payments being below that value, there is the possibility to see some levels of cash replacement that could move the needle. Cash is far from dead but we are certainly moving into a LessCash rather cashless world.  

Apple’s earnings call: an encouraging story about Apple Pay

Yesterday Apple announced its results for Q1 2015: revenue of $74.6 billion, profit of $18 billion over the three months, apparently the largest quarterly corporate earnings of all time. While these numbers are hugely impressive, of course, the payments industry was looking for any hints of Apple Pay performance. This is what we learned:
    • On enabling consumers:
      • Apple sold over 74 million units of phones, mostly iPhone 6/ 6+, which is ~9 million more than expected by the investment analysts. This matters to Apple Pay, as the new phone is a prerequisite to be able to use Apple Pay. This is a global figure, but it still means that there are millions, if not tens of millions of new phones in the US where Apple Pay has been first launched.
      • 750 banks and credit unions have signed up with Apple Pay. Of course, as we discussed in our earlier blog, the number of FIs actually already supporting Apple Pay is much smaller – 54, but the momentum is clearly there. Furthermore, the participating institutions represent over 90% of credit card transaction volumes.
    • On enabling merchants:
      • Tim Cook, Apple CEO admitted he was “positively shocked” at how many merchants were already supporting Apple Pay and revealed that POS suppliers were reporting “unprecedented demand” from merchants. Undoubtedly, the ongoing EMV migration is helping stimulate that demand for new terminals.
      • USA Technologies announced a nationwide rollout of new acceptance points for Apple Pay. This will add about 200,000 acceptance points, “bringing the advanced mobile payments service to owners and operators of coffee brewers, vending machines, kiosks, laundry equipment, parking pay stations and other self-serve appliances.”
    • On actual usage:
      • Apparently, Apple Pay is responsible for $2 out of $3 spent on Visa, MasterCard and American Express contactless transactions. While the specific statistics were not revealed, and two thirds of not much is still very little, Apple certainly demonstrated ability to acquire market share in a short period time from competitors such as Google Wallet and Softcard.
      • Apple Pay represents nearly 80% of mobile payment transactions at Panera Bread, while Whole Foods Market had seen an increase in mobile payments by more than 400% since the launch of Apple Pay.
    • On evolution and future plans:
      • Tim Cook acknowledged the opportunities around both in store and in app use cases of Apple Pay and that market specifics will determine which will be more important in any given geography.
      • As expected, Apple Pay will be expanding internationally. The management acknowledged that each market is different and will require “heavy lifting to scale,” but confirmed they were ready to tackle the challenge.
Tim Cook concluded that 2015 will be the year of Apple Pay. This might be debatable, but Apple Pay certainly had a very encouraging start. This also further validates Celent’s perspective we articulated in the latest edition of our Top Trends in Retail Payments report, which was published yesterday and is available to our clients.

The Resurgence of NFC

This is the time of the year when we begin to cast our eye back to 2014 as well as forward to 2015, and reflect on the top trends we are seeing in the market. One of the constants over the last few years in our annual Top Trends in Retail Payments report (coming up again in January 2015) has been our commentary on the ups and (mostly) downs of NFC and contactless payments. Yet, for the first time in years, it genuinely feels that NFC has finally taken a large step towards establishing itself as a major technology standard in mobile payments. Without a doubt, the biggest event in payments in 2014 was the launch of Apple Pay. Having resisted NFC for so long, Apple has finally added NFC capability to its latest devices, such as iPhone 6, thus opening up NFC to iOS. And, in a typical Apple fashion, it didn’t just add a bit of hardware, it created a fully-fledged solution with unparalleled user experience. However, the first few weeks after launch seem to have confirmed our concerns that Apple Pay was not going to be an overnight success. While the early news was encouraging with more than 1 million credit cards activated in the 72 hours following the launch, so far too few consumers are actually using Apple Pay. According to the InfoScout blog, 90.9% of iPhone 6/ 6+ users have never tried Apple Pay, and only 4.6% of those who could use Apple Pay during Black Friday, actually did. This has prompted some commentators to announce the death of Apple Pay and argue that its fate will be the same as that of many other attempts to revive NFC. The future of the payments industry remains hard to predict and the NFC “nay-sayers” may yet prove to be correct. However, we see a number of signs to be optimistic, both about Apple Pay and NFC adoption overall. The ongoing US migration to EMV and growing consumer awareness and adoption of new devices over time will help boost Apple Pay usage. More importantly, globally, as Apple Pay launches internationally and more banks become aware of Host Card Emulation (HCE) technologies, the issuers will have genuine options to deploy NFC solutions. Of course, contactless and NFC payments, even when they do gain mass adoption, are not going to be the only mobile payments option in the market. However, if for so many years it felt that the NFC land has been gripped by a long and harsh winter, we expect that it will feel a lot more like spring in 2015.

The Networks’ Support for HCE Breathes Life Into NFC Payments

In my report on Top Trends in Retail Payments published a few weeks ago, I wrote the following paragraph: “Of course, doubts remain over HCE. For example, the payment schemes are yet to clarify on whether they will deem the security and performance of the technology acceptable. However, we view it as a positive development. Inexplicably, HCE was being described by some as the “NFC killer.” Yes, if successful, it might indeed kill the SIM-based business model (and have a negative impact on Trusted Service Managers), but it might actually breathe life into NFC and contactless payments.” The developments this week removed some of those doubts. Both Visa and MasterCard announced their support for Host Card Emulation (HCE) technology, paving the way for banks to offer NFC-based secure payments without relying on the secure element inside the phone. HCE reduces the need for banks and telcos to cooperate, thus helping overcome the business model challenge. However, approval and recognition from the networks was a critical pre-requisite to the technology’s success. Networks executives stressed that it is not an “either/ or” situation and they will continue to support the “traditional” SIM-based secure element solutions. As such, it doesn’t immediately change any of the established ventures, such as Isis, but it certainly makes it easier for others to take an alternative path. I would expect HCE to be important in Europe, which already is further ahead than the US in terms of deploying contactless terminals. European banks have been issuing contactless cards, and HCE will make it easier for them to make use of that infrastructure for mobile payments as well. Having said that, HCE technology is only available on Android, so iOS devices continue to be excluded from these developments at least for now. It will be interesting to see what Apple does in payments. I plan to publish a short report soon speculating on how Apple might enter payments more aggressively – keep an eye on it!

Weve and MasterCard Collaborate on UK Mobile Payments

I’ve been following today various news reports about the announcement that Weve and MasterCard have partnered to drive forward contactless mobile payments in the UK. I am still hoping to speak to my contacts at the companies involved, but wanted to share some of my early thoughts. It is not surprising to see Weve, the JV between three leading UK mobile network operators (MNOs), pushing into payments. After getting approvals from the European authorities, Weve started with building out a “single point of contact” infrastructure for retailers and other parties to deliver marketing messages to consumers. However, it always had the ambition in payments, and after hiring David Sears, a seasoned payments executive, as a CEO, it was always only a matter of time before we would hear more about it. This seems like a significant win for MasterCard, although the devil will be in the details. All the indications are that this will be a “traditional” SIM-based NFC payments solution, but the announcements so far have been a little vague about the set-up and the role of various partners. The Financial Times and other sources reported that “under the terms of their agreement, MasterCard will provide technology and integration services to banks and financial institutions that use Weve’s payments platform.” What kind of “technology and integration services” will MasterCard be providing to banks? Who are the other parties involved, e.g. TSM services? Another question crucial to the success of any NFC initiative is how the business model issues will be solved, i.e. the commercial terms between banks and Weve acting on behalf of MNOs. Mobile Marketing reported Weve CEO saying that they now have a “‘commercial agreement’ with banks, via the MasterCard partnership. Banks will be able to plug in their existing payments infrastructure and pay for the service on a general usage rather than a percentage of transaction model.” This could potentially represent a breakthrough and fresh thinking in how banks and MNOs can work together. Weve is reportedly in discussions with many banks, although at this stage, no bank has yet announced its support or participation. Finally, most of the UK’s card spending is on debit rather than credit cards. Debit card spending is also growing at nearly twice the rate of spending on credit cards. According to the UK Cards Association, spending on debit cards in 2013 was £31.8bn which grew by 7.2% since 2012 compared to £13.7bn and 3.7% respectively for credit cards. MasterCard’s strength in the UK is in credit cards, whereas Visa leads in debit. To succeed, Weve needs to ensure all major networks, including Visa and American Express, are eventually part of its ecosystem. At this stage, there are still perhaps more questions than answers to the outsiders, but it is certainly a welcome development in the UK mobile payments market.

NFC Payments: Still for Patient Payments Geeks Only

Recent launch of the iPhone 5 made me decide that it was time to upgrade my old iPhone 3GS. I knew I was going to stay with my current telco provider (Orange, or as they are now known, EE), so I just went into an Orange shop to discuss my options. To cut a long story short, instead of buying a new iPhone 5, I ended up getting Samsung Galaxy S3. Among the reasons for getting an S3 was the fact that it was one of a small but growing number of NFC handsets in the UK market and I knew that Barclaycard and Orange have just made their Quick Tap wallet available on the S3 and I was keen to try it. Here are some observations based on my first-hand experience: 1. Telcos could and should do a much better job at marketing the new services, such as NFC, and need to ensure that their front-line staff are properly trained. An example of my conversation with an Orange salesman: – Me: “This (S3) does have NFC, doesn’t it?” – Salesman: “NFC?? Oh, I am not too sure, let me check.” … – Me: “And how do I sign up to the Quick Tap wallet?” (followed by me explaining to him what a Quick Tap wallet is) – Salesman: “Oh, I think you probably have to call Barclaycard to get it set-up, I don’t really know.” As it happens, both Orange and Barclaycard websites had a description of the wallet, but I didn’t see any links or suggestions how to obtain it. Finally, I downloaded the app from Google’s PlayStore and followed the relatively straightforward steps in the app to register and link a card. Only when I got home I realised that my phone packaging box had a sticker on it saying “Hold your phone here to get started with Quick Tap”, but I didn’t notice it at the time and the salesman didn’t point it to me either. In other words, I knew what I wanted and was able to get it; someone less determined than me may not even realise their phone had these capabilities. 2. The experience of using NFC seemed to get better over time. Armed with my new mobile wallet, I set out to try paying with it (you see, unlike a “normal” customer, I actually think about payment!) I went to my local town (Bromley) and into the Boots store, as I knew it was one of the early adopters of contactless terminals. My suggestion that I was about to pay with my mobile phone was met with visible excitement from the cashier staff – there was no queue, so two of them came over to take a look, saying “How exciting! We’ve seen contactless cards, but not the mobile phone payments yet!” However, the first transaction was actually quite painful – I touched the phone against the terminal and nothing happened; I thought perhaps I needed to log-in to the app (the answer is, I don’t), so I did that, and the result was the same. Finally, after a few times of trying, there was a beep and much to our relief, the transaction went through. However, the second transaction was better (only took a few taps) and the third onwards have been absolutely smooth – literally, “tap and go”. I don’t think I was doing anything different and I even went back to the same merchant, so perhaps the phone needed “to go through the motions” to properly activate the NFC chip? Again, I am a patient geek and I want this to work, so I persevere; the question is, how many “normal” customers would have had the courage to try it again if their first transaction was anything like mine. 3. There are more merchants accepting contactless than we think, but they could do a better job telling us about it. I knew I would be able to pay contactless at Boots, Pret-a-Manger and a few other well publicised merchants. I was positively surprised that I could actually pay in a lot more places than that, including small independent merchants, such as my local independent CD store and my local fishmonger. The “where you can pay” feature inside the Quick Tap wallet showed that even a cafe at my Virgin Active gym was accepting contactless. More visible signs of contactless acceptance at the counters would be helpful though – some terminals are obviously different, but others look just like regular card terminals, so I couldn’t really tell if I could use my phone without asking about it. 4. Merchant cashier staff are crucial to shaping customer opinions and should become “the ambassadors” for new technology to succeed. When buying breakfast and coffee this morning at Pret-a-Manger I again tapped the phone to pay, the cashier’s response stunned me – “Do you realise that if someone gets hold of your phone, all your money is gone?”, he asked me. After I regained my speech, I said, “is this what you tell all your customers?” Unfortunately, the overly emphatic “No!!!” could only mean, “yes, I do”… How does that help the already security-anxious consumer? Overall, I’ve enjoyed tapping my phone over the last few days. Having said that, more often than not I reached for my actual wallet only to remember to take out my phone (old habits die hard!) While the experience now is easy – literally, “tap and go”, it’s not really a step change from paying by card. And there are no additional services for now, other than the summary of transactions I get on the phone. It’s enough to excite my inner payments geek, but my experience seems to suggest that we are still some time off from a mass market adoption of NFC.

Applauding Visa’s Plans to Accelerate EMV Adoption in the US

Yesterday Visa announced its plans to accelerate EMV adoption in the US. A confluence of factors, such as some of the US merchants and issuers making independent moves towards EMV, as well as accelerating developments around mobile payments, helped Visa decide that the time to act is now. It is the first time that a major cards network has thrown its weight behind the EMV debate in the US, and I think it is a very important development. For those of us in Europe already used to EMV, the announcement had a number of familiar tactics and incentives to ignite the industry-wide migration, such as:
  • Expanding the Technology Innovation Program (TIP) to Merchants in the U.S. effective October 1, 2012. TIP eliminates the requirement for eligible merchants to annually validate their compliance with the PCI Data Security Standard for any year in which at least 75 percent of the merchant’s Visa transactions originate from chip-enabled terminals;
  • Establishing a Counterfeit Fraud Liability Shift for domestic and cross-border counterfeit card-present point-of-sale (POS) transactions, effective October 1, 2015 with fuel-selling merchants given an additional two years to comply.
However, there were some very important differences:
  • Visa is not forcing the US to migrate to Chip and PIN, a standard currently used in Europe. Instead, the migration to chip is intended to lay the foundation for dynamic customer authentication. While PIN is undoubtedly more secure than signature, both tools suffer from being static authentication methods, which, if compromised, will lead to security breaches. Dynamic authentication means that new data is generated for every transaction, making it less valuable to steal card data and thus boosting security. Visa re-iterated its intent to support signature and PIN authentication methods globally, but also stated its expectations that their use will diminish over time and be replaced by dynamic authentication technologies.
  • Visa insists on the rollout of terminals able to support both contact and contactless chip acceptance, including NFC-based mobile payments. In fact, unlike in Europe, only such terminals will qualify for the TIP incentive. By doing so, Visa creates the conditions to solve the “chicken part” of the “chicken and egg” connundrum of NFC mobile payments.
In my opinion, Visa should be applauded for:
  • asserting industry leadership;
  • thinking strategically and proposing a pragmatic and forward-looking solution;
  • proposing specific and realistic dates (SEPA rule-makers, take note!)
  • creating incentives for the migration to happen.
Nevertheless, I suspect this will generate a lot of debate in the industry. No doubt, some will argue that given the economic uncertainty and Durbin implementation, the industry already has enough on its hands at the moment. What do you think? Will Visa’s decision be enough to move the needle? How will the issuers, merchants and the other schemes react?

Rewards on Prepaid

We are all familiar with loyalty points and other types of rewards we get on credit cards. The economics (i.e. relatively higher interchange, opportunity to earn interest fees, etc.) and the stand-alone product nature (i.e. not linked to a current account) meant that many credit card issuers used to look for additional ways to stand out from the crowd to acquire customers. With economics deteriorating in recent years, the credit card rewards programmes are getting less generous, changing shape, or disappearing altogether – a subject I am looking at in more detail in my research at the moment. Those in the US are also very used to getting rewards on debit cards, something which doesn’t really exist yet in the UK. Again, it is yet to be seen where debit rewards will end-up given the Durbin regulation, but the early signs are that the shape of those is changing as well – some issuers are taking away debit rewards and others are looking for other ways to deliver them and are turning to providers such as Cardlytics for merchant-funded rewards. Then Orange in the UK announced in February this year that they are launching ‘Orange Cash’, “the UK’s first major contactless prepaid card”. In addition to regular payment features, the card allows “Orange Cash customers to earn points as they spend, which are redeemable against a range of rewards including Pay As You Go Orange texts, airtime, credit or Orange shop vouchers”. I believe it must one of the first examples of rewards on a prepaid card. Which actually makes sense – a prepaid card is also a standalone product that the customer needs to buy, so rewards can help differentiate it. And with various fees and interchange exempt from regulation (at least for now), the economics might look more attractive than many debit cards. As an “issuer”, Orange is also taking a relationship perspective and the rewards are designed to engender loyalty not just to the prepaid card, but also to the mobile network, still a primary relationship between Orange and most of its customers. This card is interesting from two other perspectives: a) It’s a prepaid contactless card. I’ve always maintained that contactless technology is most suited for prepaid wallets (from use case, not technology point of view) – given it’s “tap and go” nature, I would much rather expose my prepaid account which has limited funds than, say, my current account. b) It’s a stepping stone for Orange towards mobile payments. It gets their customers used to contactless and prepaid wallet concepts, both of which will be necessary when launching NFC-based mobile payments where Orange have strong ambitions. Now, if only someone could solve the contactless acceptance challenge…