The Betting Begins on Apple Pay’s Success: 
Part 1 - London as a Test Case for Apple Pay

In a prior post, explored whether The iPhone 6 and Apple Pay Can Fix Online Credit Card Fraud and Data Breaches? After explaining how it works, my conclusion was that Apple Pay represents a significant step forward in terms of data security and preventing online credit card fraud.

With Apple having filed for an Apple Pay patent for Near Field Communication (NFC) protocols and hardware, and Apple Pay’s rollout today (October 20) via the iOS 8.1 update, arguments are being made regarding the likelihood of ApplePay’s success or failure. Apple Pay fans believe that Apple’s secure technology will lead to Apple Pay’s success, while skeptics believe that low adoption rates by consumers, retailers, or in various countries will doom Apple Pay, much like Google Wallet (out for 3 years but little used).

This is the first of several posts that examines these arguments. Let’s begin with the likelihood of Apple Pay’s success in a key non-U.S. Market, London.

Why Consider London as a Test Case?

From culture to consumer markets to language, London is easily one of the friendliest markets in Europe for American-based firms. That doesn’t mean that American firms automatically succeed in London. They don’t. London’s consumer markets are highly competitive and many American-based firms have struggled, if not failed in London.

That said, if Apple can’t make Apple Pay work in London, then it’s going to have a difficult time making it work in other European markets distinguished by much larger differences in culture, language, spending and shopping.

Is Apple Pay Too Complicated? Is it Slower than Existing Tap and Pay Systems?

ZDNet’s Simon Bisson argues that while Apple Pay increases the security of credit card-based retail transactions in the U.S, it is too complicated and will be just one of many existing secure payment technologies already in use in London. She says:

In the UK we've been using the Chip and PIN technologies that are just starting to roll out in the US for more than a decade now (it was a novelty to actually use my PIN in a Dallas Walmart back in May). Chip and PIN is widely credited for significantly reducing credit card fraud in the UK, by using the card to encrypt transactions from store to payment provider.

It's now being joined by a related technology, the NFC-based Tap and Pay service that's being used for relatively low value transactions, up to £20 — a technology that's closely related to the more complex Apple Pay.

In short, Bisson argues that Tap and Pay is simpler and faster than Apple Pay. Decide for yourself in these videos, but I don’t see a difference.

First, tap and pay using Google Wallet.

Now, payment via Apple Pay.

If there is a difference, would it be enough to deter Apple Pay users or retailers in London? Imagine that you’re 7 people deep in line in at Pret a Manger, one of London's most popular coffee/sandwich chains. You're waiting to pay for your coffee and pastry. Will Apple Pay cause you to be late? No. It's the six people in front of you not using Apple Pay or Tap and Pay who will make you late.

Do Adoption Rates for Existing “Tap and Pay” Systems in London Represent a Meaningful Barrier to Entry for Apple Pay?

Bisson argues Tap and Pay is already being rolled out in thousands of London coffee shops and that this constitutes a meaningful head start.

Perhaps, but the NFC readers in those London coffee shops can just as easily use Apple Pay with almost no effort from retailers. And, having spent 3 weeks in London in September, I didn’t see many people using Tap and Pay. PIN numbers with their credit cards, yes. But Tap and Pay, not so much.

In terms of technology adoption, most Tap and Pay systems in the UK have been rolled out in the last 6-12 months. According to ZDNet, “UK payment processing firm Worldpay said that June 2014 marked a new record for contactless payments, reaching £71.6m for the month. Its data also shows that contactless payment volumes in the UK more than doubled from four million in July 2013 to 10.9 million in July 2014. London represents 42.1 percent of its contactless transactions made since January 2012.” What do these numbers tell us? That adoption is growing. But, doubling over the course of a year isn’t rapid growth. Likewise, we’re talking roughly £30m ($46m) in contactless payments in London in June 2014. While that isn’t nothing, that’s just a small percentage of London’s monthly retail spending.

So Apple Pay isn’t swimming upstream against an already dominant electronic payment system. There isn’t one unless you count credit cards, and most of the credit card companies have signed up with Apple. And even if Apple was trying to dislodge an already dominant standard or technology, it’s not like they haven’t had tremendous success doing so in music, iPods, smart phones, and computers. Apple is rarely first to market. But once they enter markets, they often do so in disruptive fashion. Time will tell whether Apple Pay does that again with secure electronic payment systems.

Tap and Pay is Already Part of London Transport’s New Contactless Payment System.

Bisson points out that Tap and Pay is now part of the contactless payment system for London Transport’s bus and tube system for purchases under £20.

This system rolled out while I was in London in September. However, in its current state, Tap and Pay probably won’t be used by the millions of regular London commuters. Why not? Because they save substantially on a per ride basis by purchasing monthly or annual passes that naturally cost much more than £20. London Transport is aiming this at infrequent riders who are more likely to use “pay as you go,” which is more expensive on a per ride basis.

I speculate that contactless payment is part of London Tranport’s strategy to automate the selling of Tube passes for millions of London tourists. Setting up a contactless payment account has got to be easier than using the automated kiosks found in most tube stations, which seem to confuse the hell out of most tourists. I’ve been to London 25 times and I’m still unsure which options to press each time I use the kiosks. My son, who rides the Washington DC Metro watched me use the Tube kiosk and says it’s way more complicated than in DC.

And instead of seeing Apple’s use of biometric identification (i.e., Touch ID) as a strength, Bisson says it will slow down and complicate transactions compared to Tap and Pay, particularly with London Transport as commuters get on and off of buses and walk through turnstiles and the enter and leave London Tube stations.

It's easy to imagine the chaos at Piccadilly Circus tube station at rush hour when people struggle to unlock devices and tap, slowing down the crush of commuters, or when someone blocks the entrance of a number 14 bus outside Harrods, while juggling phone, fingerprint and several shopping bags (and that's ignoring the issue of batteries running out just when you need to pay).

My experience with TouchID is that it's reliable and instantaneous, so I'm not sure it would be problematic. But if it were, it wouldn't be all that different than the current problem London commuters run into with touch-based Oyster Cards (which include weekly, monthly, and annual passes, as well as pay-as-you-go where commuters pre-load a card with, say, £30 and then are charged on a per-ride basis) which occasionally malfunction as they try to go through turnstiles. When that happens, you step out of line and present your card to the London Transport person who is usually positioned off to the side to deal with such issues. They validate your card and let you through.

On the other hand (having ridden the London Tube for nearly 2 decades - I teach in London every summer), everyone has their phones in their hands and is either listening to music or reading or texting or emailing, so ApplePay might not slow things down as much as Bisson thinks, assuming that London Transport adopts it as part of its payment system.

Tap and Pay users, however, may encounter a problem known as “card clash,” which London Transport explains as follows:

If the readers on buses, tram stops or at stations detect more than one card:

  • It doesn't know which card to take payment from
  • If you get a green light it could take payment from a card you did not intent to pay with
  • If you get a red light it means you won't have paid for your journey
  • If you're at a ticket gate, it may not open

If you touch more than one contactless card on a reader at a station at the same time:

  • The reader could take payment from a card you did not intend to pay with
  • You could be charged two maximum fares for your journey. This happens when the reader charges one card when you touch in and another card when you touch out.

Not exactly an airtight system is it? In fact, suggests that “wearables” such as the Apple Watch, which are supposed to work with NFC scanners, may be the best way to fight card clash.

At this point, London Transport’s 1-month use of contactless payment doesn’t help or hurt Apple Pay. But it does further legitimize electronic payment systems, which, ironically, may make London consumers more comfortable with Apple Pay.

Conclusion: Apple Pay and London

It’s hard to see how Apple Pay is more complicated or slower than current Tap and Pay systems in London.

Furthermore, existing Tap and Pay systems are not so widely adopted as to represent a significant barrier to entry for Apple Pay for London’s consumers and retailers. It’s much too early in the game to view any system, including Apple Pay, as the early favorite.

Finally, it’s hard to see why Apple Pay adoption rates should be radically different in London than they are in, say, New York. Daily rituals such as commuting, shopping, eating breakfast and lunch out, and grabbing takehome (in London, it's called takeaway) for dinner, are remarkably similar for NYC and London and residents.

As with past changes in consumer behavior, expect convenience and security to drive consumer adoption and usage.