Apple is launching its mobile in the U.S. only, but Visa Europe is working closely with its member banks and the tech giant to bring Apple Pay to Europe as well, and there are signs that Apple has its sights on other markets.
Apple Pay will be available in the U.S. as a free update to the iOS 8 in October. The system allows consumers to make contactless purchases using their mobile device through Near Field Communication (NFC), as well as in-app purchases.
Even though Apple has not provided a timeline for Apple Pay's global expansion, merchants and consumers in Europe are watching the product closely, said Jon White, head of mobile strategy at Visa Europe. "We anticipate a 'halo effect' which will benefit all players in the mobile payments ecosystem," he said.
The U.S. is a choppy proving ground for Apple Pay, given that many significant retailers don't accept NFC payments. In particular, Walmart and Best Buy have reportedly stated they will not support Apple's NFC wallet.
"One of the advantages Apple would have in Europe over the U.S. is a much larger installed base of terminals capable of accepting NFC transactions," said Zil Bareisis, a London-based senior analyst for research firm, Celent.
Apple declined to comment on the specifics of its global expansion plans. There are more than 1.5 million Visa contactless terminals at European merchants today, according to Visa Europe.
This install base is likely to grow as a result of MasterCard's recent contactless acceptance mandate, which requires contactless cards and mobile wallets to be accepted at European MasterCard and Maestro merchants by 2020.
"However consumers are getting quite used to paying with contactless cards," Bareisis said. "In its current form, Apple Pay simply replicates that experience; arguably it's a more secure form of payment but will it be enough to change consumer behavior?"
This is an especially important question as it relates to the lack of incentives for consumers to use the new mobile payment method. Many mobile wallets come with a reward program to incent consumers, but Apple is using security as its selling point. In its presentation last week, Apple discussed the use of tokenization, dynamic data and Touch ID fingerprint authentication.
Another hurdle for Apple in Europe will be the number of successful mobile payment systems already up and running, said Andy Schmidt, research director at CEB TowerGroup.
La Caixa, Rabobank, DnB, Vodafone, Orange and many others offer NFC-based mobile wallets throughout the continent. Many banks also issue contactless cards and some, such as Barclays, have begun putting the technology into payment-capable wristbands.
"We don't believe using Apple Pay will be a huge behavioral transition for the 100 million consumers across Europe who are already using contactless cards as consumers are increasingly using their phones to do almost everything, from online shopping to navigation to monitoring their health" White said.
Visa Europe has partnered with a handful of other mobile payments providers, including Google Wallet, because "no single company can deliver mobile payments at scale," said White.
But Apple may be content to focus on the U.S. for the near future.
"Apple is a U.S. company wanting to start at home," said Schmidt. Apple wants to "make sure [Apple Pay] works here first especially since this is still a vastly under-penetrated market in terms of contactless technology, especially at the point of sale."
And interchange in the U.S. is much more robust and lucrative, Schmidt said. Because Europe and Australia (which also has an advanced contactless infrastructure) limit interchange fees, Apple could have a harder time getting banks to share revenue.
"Banks [in the U.S.] are happy to share interchange fees because there is a possibility that they'd get disintermediated altogether," Schmidt said. "They're willing to share a little bit of revenue if they can get more volume going to their cards."
According to CEB TowerGroup research, 31.6% of mobile transactions happen on iOS smartphones and 41% happen on iOS tablets, compared to 20% on Android phones and 6.6% on Android tablets. "Retailers have a much better incentive now to start adopting NFC terminals," said Schmidt.
Asia is also a market to watch for Apple Pay. "One of the things everyone picked up on during the live feed was that the feed kept breaking and it was simultaneously being translated into Chinese," Schmidt said. "This was a nod to wanting to service the single largest marketplace on the planet."
Months ahead of Apple Pay's launch, one report suggested the mobile wallet would launch in Asia through China UnionPay.
In China, NFC is more prevalent, and while Android devices are more established, Apple is seen as a status symbol in the country, said Schmidt. And this could allow Apple to become a competing handset.
"China is probably at the top of their list for emerging market launches," he said.
Apple is also likely eyeing Japan, one of the most advanced markets in the world in terms of contactless payments. In July, Apple launched at automated account loading feature called iTunes Pass in Japan, which eliminates the need for plastic gift cards.
Singapore is another advanced payments market in Asia that Apple might target. And a growing number of consumers in Thailand prefer mobile payments.
The only market that might not be on Apple's short list for launching Apple Pay is Latin America, said Schmidt. "Markets like Latin America are certainly looking to make inroads in the mobile payments space but the wages and salaries of its residents makes a phone like the iPhone out of reach."