Apple Pay faces tough crowd

Apple Inc Chief Executive Officer Tim Cook has called 2015 the "year of Apple Pay." So far it's been underwhelming. The mobile-payments system, which marks its one-year anniversary this month, has failed to catch on with consumers, accounting for only one per cent of all retail transactions in the US, according to researcher Aite Group.

The service - which allows users to pay for purchases by tapping their iPhone, iPad or Apple Watch on a device at cash registers - has suffered from a lack of promotion and limited number of terminals available in stores.

Plus Apple Pay is only available on newer iPhones. "People don't know why it is they'd use Apple Pay," said Jared Schrieber, CEO of InfoScout, a shopper-research firm. "They are satisfied with the current methods and they don't know how Apple Pay works."

Apple, which relies on new products to sustain growth, entered a nascent market when it introduced its mobile-payments system last year.

Like most things Apple, expectations were high for the payment service, which was seen as a potential rival to PayPal. In January, Cook spoke of "momentum" for Apple Pay, which, he said, was "off to a very strong start" and being implemented by banks, credit unions and numerous merchants.

Competitors have followed - Samsung Pay and Google's Android Pay were both introduced this year -- but the consumer hasn't yet. Merchants who adopted the system say that demand has been tepid.

Take Panera Bread Co., one of the retail locations where Apple Pay debuted last October. The service accounts for "low single digits" of the restaurant chain's in-store transactions, said Blaine Hurst, Panera's chief transformation and growth officer. It represents about 20 per cent of transactions on Panera's iOS app, which lets patrons place orders right from their phones, Hurst said.

At the Firehouse Subs chain, which introduced Apple Pay in January, the service makes up about 2 per cent of all transactions, said Vince Burchianti, chief financial officer of Firehouse of America LLC.

"Apple is just not even pushing it out," Burchianti said.

Several surveys back up the anecdotal evidence. More than 75 per cent of iPhone 6 and 6 Plus users hadn't tried the service as of April, according to a Kantar Worldpanel ComTech. In June, 13 per cent of 1,500 people surveyedby InfoScout and Pymnts.com said they tried Apple Pay.

A more recent, smaller survey of 500 iPhone users published in July by Auriemma Consulting Group did find that 42 per cent of the respondents used it for in-app and in-store purchases.

"We're off to a great start and we are seeing continued, double-digit monthly growth in Apple Pay transactions since launch," Apple said in an e-mailed statement.

'Hockey Stick'
There are indeed signs that demand will pick up in the next few years as Apple and rivals like Samsung ramp up advertising campaigns for their mobile-payment services.

More people will own the iPhones that enable Apple Pay - the 6, 6 Plus introduced a year ago and their recent upgrades. Apple Pay is also the most popular mobile-payments service available to iPhone users, so once consumers become more comfortable making purchases with a swipe of their smartphone, Apple will have a large and captive audience.

"It's going to grow reasonably slowly for the next three to five years, and then we are going to see a 'hockey stick,'" a sudden surge, said Thad Peterson, an analyst at Boston, Massachusetts-based Aite.

Apple will get some help this fall as more retail stores install terminals that accept Apple Pay. Credit-card networks have set an October deadline for most merchants to upgrade their systems to comply with a chip-based smart card standard known as EMV - for Europay-MasterCard-Visa. Those terminals, right now installed in less than a quarter of US stores, also accept mobile-payment systems like Apple Pay.

The switch to chip-based cards from magnetic-stripe cards in the US may also accelerate Apple Pay's adoption. Because the EMV chip cards must stay inserted in in-store payment terminals for the duration of each transaction, instead of being swiped, checkout times may be longer and the process more cumbersome. It could push consumers to embrace mobile payments - and Apple Pay.

"The inconvenience will drive more adoption," said Hurst, the Panera executive.