The Battle of the Wallet: Innovation vs Tradition

Why Apple Pay Hasn’t Yet Won the Hearts of Canadians

Introduction

It’s been almost two years since Apple introduced their latest FinTech product, Apple Pay, to the American market. Towards the end of 2015, the service finally made its way to Canada, but was really only available to Canadians a few months ago when the “Big 5” banks got on board. The EVP team has developed a strong interest in learning about how Canadian consumers are reacting to the introduction of FinTech services such as Apple Pay.

In June, the team at EVP recently conducted a survey with a sample population of 800 Canadians from across the nation. We asked them one simple question, “Do you use Apple Pay?”. We asked participants to respond with one of the answers in Figure 1. We’ve got the results back, and we’re ready to share our findings.

First, what is Apple Pay? Apple Pay is a mobile payments platform for Apple product users. Consumers can securely save their credit, debit or gift card information to the app, and then tap their phones at point-of-sales (POS) terminals in restaurants and stores for items of $100 or less, where Apple Pay is accepted.

Findings

EVP concluded that the majority of participants (89%) did not use Apple Pay. The remaining 11% range from having used the service once to using it every day. Why aren’t people using Apple Pay? Our survey tells us that the majority of non-Apple Pay users simply do not know what Apple Pay is. Kind of a problem when trying to get people to adopt your product, isn’t it? Lack of awareness is one of Apple’s greatest barriers to increasing Canadian adoption of Apple Pay.

We took a closer look to see how many Apple Pay users were actively using the app, meaning they use it either daily, weekly, or monthly. At least the service is performing well; we found that almost two-thirds of Apple Pay users are active users(Figure 4). We also compared frequency of use exclusively between active users (Figure 5), and concluded that the majority of users who actively use Apple Pay use it daily (57%).

We recognized an age trend that appears to be quite common in regards to FinTech services. We noticed that the Millennial generation (ages 18–34), use financial technology services such as Apple Pay more frequently than older generations before them (Figure 6). In our survey, ages 25–34 represented the age group that used Apple Pay the most (16.46%).

Competitive Performance

How is Apple Pay doing in general? Surprisingly, pretty well compared to its competitors in the mobile payment market. Apple Pay has over 12 million global users while Samsung and Android each only have 5 million (Kharif, 2016). But all three companies have a lot more to do. Out of all consumers with mobile pay-enabled devices, only 6% use Apple Pay, 4% use Samsung Pay, and 1% use Android Pay (Kharif, 2016).

Performance in US vs Performance in Canada:

In a survey conducted by PYMNTS, it was shown that in the United States Apple Pay adoption rates are at 23.8%, increasing every quarter year (PYMNTS, 2016). So why is Apple Pay not doing as well in Canada as in the US? Here are our top three reasons:

1. The Big Banks just signed on: While Apple Pay hit the Canadian market near the end of 2015, it was only in early May 2016 that TD Dominion Bank, Bank of Montreal and Scotiabank approved of their credit cards and debit cards with Apple Pay, BMO approving only their debit cards (Bader, 2015). In total, there are currently 8 Canadian banks that support the service:

• American Express
• ATB (MasterCard credit cards)
• Bank of Montreal (Interac debit cards, MasterCard credit cards)
• Canadian Tire (MasterCard credit cards)
• CIBC (Interac debit cards, MasterCard and Visa credit cards)
• RBC — Royal Bank of Canada (Interac debit cards, MasterCard and Visa credit cards)
• Scotiabank (American Express and Visa credit cards, Interac debit cards)
• TD (Interac debit cards, Visa credit cards)

In general, Apple Pay is still relatively new to the Canadian market. Now that more banks and retailers have signed on, we may start to see an increase of adoption.

1. The latest versions of iPhone are not used by everyone in Canada: While there are 28.5 million adults who have at least one Canadian bank-issued credit card, only approximately 38% of Canadian phone users have iPhones and operate on iOS (Dingman, 2016). According to an article in the Globe and Mail, 51% of Canadians opt for Android operating systems (Dingman, 2016). While Apple is the largest player by device market share and the second largest by OS, some Apple users may not possess a device with the option to use Apple Pay. To use the service, users must have either an iPhone (versions 6 and higher), Watch for Apple Pay, or iPad (Pro, Air 2 or mini 3).
2. Lack of Awareness and Acceptance: As we saw in our survey, there is a severe lack of awareness for the service in Canada. Furthermore, we believe there is also a large lack of acceptance from both businesses and consumers. Canadians, both merchants and consumers, have only recently started to adopt Interac Flash, even though it has been available for over a decade. On the merchant end, it is costly to accept credit card transactions, and not all merchants may be willing to invest in “Near Field Communication-enabled” POS terminals. On the consumer end, there were concerns about security and transparency, as well as the fear of overspending due to the convenient and quick purchasing method. A 2012 MasterCard study reported that consumers spent 30% more after receiving “tap-enabled” cards (Sturgeon, 2015). By July 2015, “80% of merchant point-of-sale (POS) devices in targeted areas” (chain restaurants, pharmacies, grocery stores) could process payments via NFC, approximately “30% of all POS devices were NFC enabled”, and “between 10 to 20% of total transactions were contactless” (Canadian Banking Association, 2015). In September and June 2015, MasterCard and Visa, the two largest credit card providers in Canada, both reported that about one quarter of all in-store purchases using their cards were contactless (Sturgeon, 2015). While the adoption of contactless purchasing has made way in Canada, perhaps Canadians are just not ready to leave their wallets at home.
3. The user experience has been unsatisfactory: Even in the States, where Apple Pay first launched, there have been reports of unsuccessful Apple Pay experiences where either the merchants said to support the service do not actually have the technology, or the transfer does not work. According to a report from Phoenix, “The demand is there…but so is the disappointment: 47 per cent visited a store that was listed as an Apple Pay merchant only to find out that the specific store they visited did not accept (or were not ready to accept) Apple Pay” (Lewis, 2015) . As a result, repeat usage has declined steadily. In a PYMNTS survey, the proportion of people “using the service at every chance they got” went from 48% in March 2014 to 21.3% in June 2016 (PYMNTS, 2016).

Extreme-employee experience: We decided to try out Apple Pay ourselves to see if the product had merit, and if we would have the same user experience as Americans.

The set-up process:

1. Click “Wallet” on iPhone screen
2. Hover your card over the screen. The camera will capture the card numbers so you do not need to enter them in manually.
3. Agree to Terms and Conditions
4. Wait and Approve Verification (approx. 30 seconds)
5. Forcefully download your bank’s Wallet App (RBC in our case) or call the bank yourself (number given). We chose to download the app.
6. Download and sign into Financial Institution’s Wallet App to verify account, manually entering your card number and entering your password (We used RBC’s Wallet).

7. Verify credentials back in the Apple Wallet, and begin use.

To use:

1. Double-tap phone
2. Fingerprint verification
3. Tap phone on POS terminal to purchase

One Extreme member said they already had their credit card set-up under Apple Pay, but had never used it before. To him, pulling out a credit card and hovering over the terminal was a lot easier than double-tapping, swiping a fingerprint and then tapping. He tried it out at a McDonald’s automated kiosk and said the process was relatively easy, and that he liked that he could track his payment history right after purchasing. Another member supported Apple Pay, stating that it would probably be easier to tap a phone than bringing a card, because there are more chances of her remembering to bring her phone than her wallet. Just this morning before she went to go buy a coffee, she pulled out her card from her wallet, brought her phone, and left the wallet behind. In cases like this, bringing just the phone would be much simpler. However, like we’ve mentioned, not many merchants and consumers have adopted Apple Pay just yet, and there is uncertainty in just relying on Apple Pay. Lucy from Extreme Accelerator says, “Everyone here uses tap. It’s like using Uber, you know it works, everyone uses it, and it’s convenient. If we were in the States it’d be different, as people there find it odd to carry around plastic…but because I am unsure if retailers are using Apple Pay, I don’t want to risk not taking my card and relying on my phone”. Making Apple Pay a popular trend, where both retailers and consumers endorse the service, is key to building this habits.

5. Canadians have adopted use of tap and chip methods as alternatives to fraud-prone swiping methods, while Americans use mobile payment as their only preferred alternative to swipe:

Looking into the credit card market in America, we noted that the US only recently began implementing chip-enabled cards. USA Today says that only 37% of businesses even accept chip-enabled credit and debit cards (Jones, 2016). And what’s even more shocking is that less than 2% of Americans have smart cards (Long, 2016), whereas in Canada over 70% of all credit cards are contactless (Broverman, 2016). This means that most Americans are used to swiping their credit cards, a method that is very prone to credit theft. Seeing as Apple Pay is considered a more secure method of payment than card swiping, it makes sense that adoption of this method is higher in the US than it is in Canada, where other methods of payment such as chip or tap are more widely used.

Recommendations:

The battle of the wallet. While many use their wallet as a place to store their credit and debit cards, it is also a safe place for several other cards, cash and forms of identification. If a person has to bring their wallet at all, the convenience of Apple Pay becomes less useful. People will believe that since they have to still carry their wallet, they might as well still bring and use their credit cards. By implementing some of the following recommendations, Apple may be to increase Canadian adoption rates:

1. Build trust through awareness and education: Apple Inc. needs to accentuate the “security” factor of using Apple Pay as opposed to contactless cards. Apple will have to convince users that leaving their cards at home is actually safer, as it is harder to crack into Apple Pay account than into a stolen physical credit card. They will also have to highlight the ability to only access the card through fingerprint identification. Furthermore, they should distinguish their product from cards by emphasizing that users can view their recent payment amounts directly on the app following the transaction. This is a key competitive feature that contactless cards do not offer. Looking back to the statistic that shows that users of tap increased their spending by 30% in one year after receiving contactless cards, we believe that this feature will help reduce overspending, and encourage the consumer to spend wisely.
2. Make the setup process easier: eliminate the consumer’s communication with their bank. To get people into the habit of tapping with their phone, Apple needs to ease the process of setting up the service. As you can see from our trial of Apple Pay above, the fact that users have to download their own bank’s mobile wallet or talk to their bank to verify their account, and then come back into the Apple Wallet is very inconvenient. As much as one of our members wanted to use the app, there was no way to recover her password. Apple should be working closely with their partners at Canadian banks to make the set-up process easier, while still maintaining the security of its users. One member of Extreme mentioned that if the set-up process was done for him, he would probably start using mobile purchasing more frequently. In order to keep the security of service, “just being able to accept an email from the bank allowing the app to work on my phone with my credit card already installed would be ideal”.
3. Engage big as well as smaller stores (gas stations and convenience stores) to make Apple Pay accessible everywhere. Apple Pay currently has restaurants and stores on board like Tim Hortons, McDonald’s, Petro-Canada, Staples, and Canadian Tire. There are also apps that now accept Apple Pay, such as Delta, Groupon, Kickstarter, Ticketmaster and Starbucks (CBC News, 2016). However, there is a large concern that convenience stores will not want to make Apple Pay available. Apple should target small businesses to ensure that no matter where their consumer goes, there service is accessible to them. They will have to highlight the idea that faster checkout times and committed card numbers in their systems will increase sales and productivity, and that this outweighs any time spent making the change. Furthermore, they will need to educate businesses on the fact that Apple Pay is easily accessible if one already contactless payment terminal. Most importantly, they need to highlight that adding this service to merchants’ NFC terminal is FREE (Apple Inc., 2016). If feasible (and not already tried), Apple should create partnerships with retailers to provide free or discounted terminals in exchange for adoption and promotion of the service.
4. Make sure that approved stores actually provide the service, that members of the stores are aware on how to use it, and that it works. Rewarding retailers that promote the service to their consumers will likely increase overall user adoption rates. Similarly, rewarding consumers may increase repeat usage rates. Furthermore, Apple as well as its partnering banks should maintain customer care for retailers and consumers. For example, notifying customer service representatives when users are not making it past the home page or when stop using the service completely, would be a good way to track user satisfaction.

Conclusion

What started off as just one simple question in a survey to Canadians, slowly became a topic of conversation and interest around the Extreme Accelerator office. We learned a lot about the mobile and card payments markets, as well as about retailers and the mobile operator industry in Canada and the United States. We concluded that while Apple dominates the device market, and is a key operating systems player, Apple Pay is still unknown to or rarely used by many Canadians. We noted that according to our survey, Apple Pay’s largest user base by age is Millennial generation, because they are more accepting of FinTech products than older generations before them. We challenged our way of thinking, asking questions from different points of view to really determine the state and potential of Apple Pay in Canada. Will the service rise amongst tap and chip payments in the near future? There is definitely potential, and usage is already on the rise. To increase repeat usage, Apple will need to continue refining the user experience between involved parties (banks, consumers and customer service), and will need to increase their marketing efforts to increase awareness of the products on both retailer and consumer ends. Only time will tell us whether or not Apple Pay can win the hearts of card-fans across Canada and “defeat the wallet”.

*Referring to our survey statistics, we can infer that with a margin of error of 3.46% for a confidence interval of 95%, that roughly 3 million adult Canadians use the service, and that 65% of these consumers are active users of the app.

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