When Apple launched its Apple Pay mobile payment service more than two years ago, it hoped to speed up the checkout process and, ultimately, to replace physical wallets for US consumers.
Apple Pay has made significant headway, but consumer’s wariness reflects a range of factors that analysts say have caused growth to undershoot their expectations, including security concerns about the service, retailers that don’t accept it, and Apple’s paltry marketing budget.
The pace of Apple Pay adoption has been “disappointing even to conservative expectations,” said Gene Munster, managing partner at Loup Ventures, a venture-capital firm specializing in tech research. Just 13% of the estimated 680 million iPhone users have used Apple Pay, according to the research firm.
Eddy Cue, Apple senior vice president in charge of internet software and services, said the service has been adopted faster than other payment systems and he believes it will eventually replace cash, debit and credit cards as the primary payment system.
“Does it matter if we get there in two years, three years [or] five years?” Mr. Cue said in an interview with the WSJ. “Ultimately, no.”
The service requires users to upload their credit or debit card to their iPhone wallet by scanning an image of it. Fingerprint verification is required for security. The service can also be used to pay in apps and online.
Many US consumers remain wary of such a service, according to technology research firm Creative Strategies: 40% are concerned about the security risks of adding a credit or debit card to their phone, and more than 60% aren’t familiar with contactless payments.
Compounding Apple Pay’s challenges, only a third of US stores accept it as a form of payment, according to the Nilson Report. The payment-industry trade publication notes, however, that the service’s rate of acceptance has more than doubled since 2015.
“If you can’t use it everywhere, why are you going to switch?” said Braden More, Wells Fargo’s head of partnerships and industry relations, who is surprised more retailers haven’t embraced mobile payments. He expects acceptance and usage to grow.
Big names including Wal-Mart and Kroger haven’t yet enabled Apple Pay, due in part to technical hurdles, and even at stores that do use the service, users say cashiers often aren’t familiar with it.
Paul Davis said he recently had to inform a McDonald’s cashier in Cincinnati that the burger chain accepted Apple Pay and show her how. “It happens all the time,” he said.
Vice President of Apple Pay Jennifer Bailey said Apple has a team working with merchants to instruct cashiers and add instructions to check-out manuals. She said more than half of the biggest 100 merchants in the US have adopted Apple Pay, including Best Buy, Kohl’s and Starbucks.
Loup Ventures’ Mr. Munster, a longtime Apple analyst previously with brokerage Piper Jaffray, estimates Apple Pay last year handled $36 billion in transactions, far less than the $207 billion he had predicted by 2016 after Apple started the service.
Apple doesn’t disclose the number or value of Apple Pay transactions, but Chief Executive Tim Cook recently said the number of users has tripled over the past year and transaction volume increased more than sixfold last year.
Apple Pay brought in $30 million in revenue last year, according to Sanford C. Bernstein — a fraction of the $24.35 billion generated last fiscal year by Apple’s services unit, which also comprises Apple’s App store and iTunes. The company announced in January it aimed to double its services revenue by 2021.
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