Apple Pay’s Struggles Show Why It’s So Difficult to Build a Payments Platform


While Apple Pay got off to a good start, it hasn’t quite been the resounding success Apple had hoped.

Apple Pay, like any payments platform, has to manage a delicate balancing act between providing enough value to four different groups. Apple has to attract card issuers, credit-card networks, consumers and merchants. Even if Apple Pay can get three of these groups on board, if it doesn’t provide enough value to one group, then that group won’t join. And if one group won’t join then the other three groups are less likely to join as well, since they won’t get full value from participation.

Apple Pay is a great exxample of a multisided platform that has to bring together multiple groups.

This is a classic chicken-and-egg problem, where if one group won’t join then the others won’t adopt the platform either. It’s with merchants that Apple Pay has run in to trouble.

Apple recently announced that users had registered more than one million credit cards in Apple Pay so far and that the service was available in over 200,000 stores. However, more than a few merchants have complained about the service, saying that it doesn’t provide them with enough data. Also, major retailers like Rite Aid and CVS blocked Apply Pay in their stores despite already having the technology to allow it. Reportedly, they are planning on going with a competitor from the Merchant Customer Exchange (MCX).

These concerns highlight the difficulty of building a successful payments platform. Apple did a masterful job in getting the major card issuers and credit-card networks on board (and securing itself the discounted “card present” rate), though it reportedly cost itself PayPal’s participation in the process. But for merchants, there isn’t a tangible economic advantage to using Apple Pay.

This is no small issue for Apple, given that merchants are the ones who will bear the cost of installing the NFC-enabled hardware needed to make Apple Pay work.

Additionally, another problem is that merchants must pay the credit-card processing fee, as Apple Pay uses consumers’ cards as the source of funds. In contrast, MCX’s forthcoming payments platform, CurrentC, will reportedly draw money directly from consumers’ bank accounts. This system will allow merchants to avoid paying swipe fees every time a customer pays.

Conversely, Apple Pay is much easier and more convenient to use for consumers than CurrentC is (it runs off QR codes and is much slower), so it will be more difficult for CurrentC to get consumers on board.

But here’s the rub: often consumer and merchant interests are in direct conflict. Take the data issue: Apple Pay doesn’t collect information about what you buy when you make a purchase, and major retailers like Panera Bread and Starbucks have complained. Each of these companies wants more data about its customers so that it can provide better experiences to them, like built-in loyalty programs. But it’s not clear that consumers want merchants to have that kind of information. In fact, from the consumer point of view, Apple Pay’s security is one of its major selling points.

Apple Pay is arguably much more secure than a credit card because it doesn’t actually store your card number on your phone and it only works with your fingerprint. Changing how Apple Pay works to send merchants more information would likely weaken that security.

Finally, as MCX’s plans to introduce CurrentC indicate, payments is a highly competitive space. Major incumbents include Square, PayPal and Google Wallet, none of which have been very successful at bringing mobile payments to a mainstream audience.

A few of the major incumbents in the mobile payments industry

Apple made big strides by getting the major credit card companies on board and making its system simple to sign up for, and Apple’s brand equity will undoubtedly help Apple Pay gain adoption by consumers.

Still, balancing the needs of four different groups is no easy task. If one of Apple Pay’s competitors can make a better offer to merchants, all of Apple’s current advantages might not amount to much.

To overcome this challenge, Apple could help subsidize the cost of NFC-enabled hardware for merchants. Square does something similar by giving away the Square card reader to merchants who sign up for its service. While this would be a costly strategy at the start, it would make Apple Pay a slam dunk for every group involved. And given how much Apple has invested already, the cost of subsidizing merchants would likely be small compared to the benefits of establishing Apple Pay as the dominant mobile wallet of the future.

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