Apple Pay's launch about a month ago was accompanied by an almost unprecedented amount of hype and media attention, but it takes more than buzz to shift the world to mobile payments, and Apple's job is far from over.
That reality is Apple Pay, which begins its second month later this week, will take a long time to catch on with most stores. Even with Apple's branding skills, Near Field Communication payments are still a long-term battle, and Apple will likely win more short-term victories by focusing on in-app payments.
"One thing we forget is how long it takes to gain scale in payments," said Gareth Lodge, a senior analyst for Celent. "The last payments product to get 10% market share took more than 10 years to do so. And that was debit cards."
The first adoption numbers for Apple Pay's use for in-store payments are starting to come out, revealing tangible uptake but not a substantial wave of converts. Merchants are mixed in their characterization, with McDonald's reporting Apple Pay accounts for half of its tap-to-pay payments and Whole Foods reporting 150,000 transactions across its entire chain. Toys R Us reported limited use, though that was attributed to a lack of user experience with the product.
While the relatively small numbers demonstrate traction, Lodge said the results may still underwhelm in the short term, noting that even PayPal still doesn't have 10% market share after a decade and a half.
"That's not a criticism of PayPal," he said. "It's just really hard to displace something else that has existed for years. We need to be judging Apple Pay over five years at the earliest and not one month. But that's not how the tech people will see it nor [Apple's] investors."
Apple did not return a request for comment. Analysts say the next step for Apple Pay is to expand geographically and broaden its use in mobile commerce, where there is greater consumer acceptance of mobile payments.
"While the press watches for NFC penetration, Apple is surely watching the more relevant numbers, those related to in-app payments," said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research. "Apple can create a big spike in payment volume there by riding and enabling an already growing wave."
"The creation of an NFC ecosystem is a much longer-term project," Oglesby said, adding that most acquirers report merchant demand for NFC is unchanged. "It doesnt appear that current consumer demand is enough to change merchant behavior in the offline world."
The early uptake numbers, even if they seem low for in-store contactless payments, still place substantial pressure on other payment companies to respond to Apple, said Paul Martaus, the owner of Martaus & Associates, a merchant acquisition consultant.
"Apple Pay has its detractors and it has some flaws they are getting castigated for not including corporate cards, for example, but Apple Pay works," Martaus said. "They are going to drag a lot of players kicking and screaming into the mobile pay fold."
Next year will be the "year of Apple Pay," Forrester predicts, saying Apple Pay will drive awareness of tokenization and biometrics as well as mobile payments.
"Even if early consumer adoption is slow to ramp-up, Apple's approach for in-store and in-app payments will drive some competitors to become Apple Pay partners," Forrester said in its Nov. 17 research note. Forrester also projected U.S. mobile payments will top $142 billion by 2019 across all types (in-person, peer-to-peer and in-app), up from $52 billion in 2014. In-person mobile payments will reach $34 billion by 2019, Forrester said
Any initial slowness or gradual adoption of in-store payments is similar to the early days of point of sale systems at retailers, or paying for gas at the pump, Martaus said. "There was an awful lot of supermarkets that didnt want to get into point of sale and start accepting credit cards at first, too. But as soon as a retailer hears 'You don't take Apple Pay. Can you direct me to a store that will?,' that will be it. That store will install Apple Pay."