U.S. merchants will have to upgrade their terminals soon to be able to support the influx of Apple devotees who will want to use their new phones to make payments.
The upcoming iPhone 6 and iPhone 6 Plus have already broken Apple's sales records, reaching 4 million purchases on the first day they were available for pre-order. This sudden burst of payment-capable iPhones is a compelling reason for merchants to finally embark on long-postponed hardware upgrades at the point of sale.
Until recently, the biggest motivation retailers had to upgrade was the looming October 2015 deadline set by the card networks, a deadline that specifically addresses EMV-chip card payments. The card networks' deadline is a stick, and "Apple Pay is the carrot," said Gil Luria, a managing director at Wedbush Securities. "Retailers can use this to create a new experience and engage customers in a new way."
Apple Pay uses the new iPhones' embedded Near Field Communication chip to enable contactless mobile payments at the point of sale. For the consumer, it's a similar process as using Google Wallet or Softcard, but with the addition of Apple's considerable marking muscle.
Apple Pay will promote NFC usage, therefore accelerating the payment terminal replacement cycle, said Thierry Denis, Ingenico's North American president.
Smaller merchants are more prone to migration pressuresonly about half of smaller merchants are NFC ready, while almost all of large merchants are, Denis said. There are a number of options to upgrade, Denis said, including PIN pads that accept NFC payments. "The only thing they need is to download it, it's a very simple process," he said.
Security technology will also get fresh attention, as retailers look to add protective measures such as tokenization, which protects payment account data by replacing it with a different string of characters.
"There may be a need in the back office to install technology to handle tokenization," Luria said. "But that was going to happen because of the work Visa and MasterCard are doing on tokenization."
Even with Apple's mobile wallet launch imminent, there are still many technologies that need to be upgraded before Apple Payand any competing mobile walletcan fully mature, said Jeff Rauscher, director of solution design for Redwood Software.
"It's cool what Apple has done, and it's making it easier for vendors and buyers to offer mobile payments," Rauscher said. "But as a retailer, how do I go from accepting mobile payments to actually realizing those payments on the books?"
Much of the back office for retailers is still manual, even where some automation has been applied, Rauscher contends. These processes can be improved by using technology that retrieves payments information from the point of sale and automatically populates the fields in a back office system, Rauscher said.
"What we say is, let's treat the point of sale as a business event that can capture all of that information," he said. "There are a lot of businesses that still have people putting fingers on keyboards and eyes on screens."