The Hits And Misses Of Apple Pay

Well, it’s finally here! After weeks of anticipation, Apple Pay launched on Monday. Apple also unveiled the iPad Air 2 and iPad mini 3, both with Touch ID sensors and an embedded secure element, which means Apple Pay can be used for in-app payments on those devices as well as the iPhone 6 and 6 Plus. Apple Pay launches at a time when the US payments marketplace is in turmoil: The frequency and scale of security breaches are on the rise, issuers are beginning their migration to chip-enabled cards, and mobile payments are still quite nascent — even after significant investment and a range of competitors that have come and gone. Enter Apple Pay.

Just as new products and services from Apple have reshaped other industries, Apple Pay will reshape and set a new benchmark in consumer payments. There are many well-designed aspects in the initial version of Apple Pay — these are the Apple Pay “hits.” They include a context-aware, streamlined user experience; a breakthrough approach to security; unprecedented payments ecosystem cooperation; and great timing.

Although there is a lot to like about Apple Pay, this ship has holes. If not addressed, these “misses” — such as an inability to scale in-person payments, limited consumer and merchant value, and reduced consumer insight for marketers — will derail Apple Pay's ability to reach the mainstream, become the undisputed commerce platform of choice, and achieve Tim Cook’s vision of replacing the wallet.

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Merchants Will Decide The Fate of Apple's Mobile Wallet

The frenzy over Apple’s formal launch into the digital wallet space has reached a fever pitch. There is no shortage of speculation around the widely anticipated “iWallet” – and for good reason. Apple has a slew of compelling assets to leverage for its wallet, like an existing consumer base with roughly 800M cards on file, Passbook, iTouch, iBeacon, and more. It also has a unique track-record of entering existing categories with elegantly designed solutions that redefine, then dominate -at least for a time. However, we can’t ignore the fact that the mobile wallet graveyard is littered with elegantly designed solutions that failed to take off. Case in point: Square Wallet.. 

When it comes to digital wallets “…build it and they will come…” simply does not hold true. The challenges of Google Wallet and Visa’s V.me are two more familiar examples. To be clear - I do expect that over time Apple’s mobile wallet will have greater success than Square Wallet, Google Wallet, or V.me.  But an elegant user experience won’t be enough to do it. Merchants will determine whether Apple’s mobile wallet lives or dies.

Digital Wallets Require Scale, And Merchants Control The Levers At Checkout

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Bitcoin: Some Parts Brilliant, Some Parts Sure To Bomb

A version of this post originally appeared on Re/code.

The rollercoaster ride for Bitcoin enthusiasts continued this week: There was good news from UK regulators, who have taken a relatively progressive stance on virtual currencies, and bad news with the latest heist of 890 Bitcoin (roughly $600,000) and the resulting demise of Flexcoin, a Bitcoin storage service. The breaking news frenzy perhaps reached a new peak with the claim that the real Satoshi Nakamoto has been identified. There’s no doubt that additional revelations are on the horizon when it comes to the first crypto-currency, and with that, the debate about the longevity and usefulness of Bitcoin will continue. In our new report on Bitcoin, we address the following questions:

1.       What is Bitcoin?

2.       Who are the main players?

3.       What headway has Bitcoin made?

4.       How viable is Bitcoin as a consumer payment alternative?

5.       Should I worry about crypto-currencies like Bitcoin disrupting my business?

6.       How can I outsmart crypto-currencies?

Here’s the bottom line: Bitcoin is deeply flawed as an alternative currency or payment method for mainstream consumers. It will, however, be a catalyst for a more efficient global payments system because it demonstrates one way to tackle the many embedded inefficiencies.

Bitcoin Is Not A Viable Payment Alternative For Mainstream Consumers

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How PayPal Can Succeed Where Google Wallet Failed

Today, PayPal launched a redesign of its mobile digital wallet in the US, Australia, Canada, China, Hong Kong, Japan and the UK[i]. Although the digital wallet marketplace welcomes new or evolving competitors regularly, others - like Google Wallet- have gone back to the drawing board. To date, no third-party wallet provider has yet to achieve “broad-scale adoption” with both consumers and merchants, or, said differently, “success” with proximity or in-person mobile payments.[ii] Although most consumers around the globe have used PayPal’s online digital wallet, and some may have heard of or perhaps even used its mobile digital wallet for in-person payments, adoption is still a long way from mainstream. Google Wallet helped to drive awareness of mobile digital wallets — a useful byproduct for all competitors — yet it failed to deliver consumer adoption or merchant acceptance. With the latest wallet update, PayPal is poised to accelerate adoption by embedding value-added services designed to give consumers a reason to use the PayPal wallet across multiple categories and give merchants a reason to consider adding yet another payment method.

Some of its value-added services include:

  • In-store and Online Offers. Offers have been the foundation for other wallets in the past; they are considered a baseline feature in the marketplace and are highly valued by consumers.
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Three Disruptive Payment Trends In 2013: Greater Customer Value And Shifting Economics Will Shape The Future Of Payments

2013 will be a pivotal year in consumer payments. It will be marked by an increase in digital disruption by nimble, tech savvy competitors. Payments incumbents will leverage their market power to battle disruptors. We see early evidence of this with MasterCard's new fee structure for “staged” digital wallet providers such as Google Wallet, PayPal and Square, which mask the merchant of record and other transaction details from others downstream in transaction flow. Finally, merchants and consumers will wield their tremendous influence in picking winners and losers as the array of alternative payment options become more abundant, more accessible and begin to deliver greater value to the commerce experience. In my new report out today, titled “Three Disruptive Payment Trends in 2013,” I explore three trends, driven by digital disruption, that will shape the future of consumer payments. I provide an analysis of what each trend means for competitors across the payments ecosystem and provide recommendations for responding to the impending disruption. Here are the key takeaways:

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US MOBILE PAYMENTS FORECAST 2013-2017: Mobile Payments to Reach $90B by 2017

This week, the National Retail Federation (NRF) held its 102nd Annual Convention and EXPO —Retail's Big Show 2013. Attendees gathered from around the world to demo products and services and exchange ideas about the future of retail, including mobile payments. Mobile payments have captured the attention and imagination of industry insiders, venture capital investors, and innovators. Although retailer investment and consumer adoption have been nascent to date, we see that changing. Forrester forecasts that US mobile payments will reach $90B in 2017, a 48% compound annual growth rate (CAGR) from the $12.8B spent in 2012.

In my new report out today, titled “US Mobile Payments Forecast, 2013 To 2017”, I outline the growth drivers and inhibitors for the three mobile payments categories: mobile proximity, or in-store payments; mobile peer-to-peer (P2P) and remittances; and mobile remote commerce, or mCommerce. Here are the key takeaways:

  • Mobile payments adoption will be fueled by unprecedented growth in proximity payments. Mobile proximity payments are currently the smallest category within mobile payments, but we expect it to be the fastest growing. Proximity payments will reach $41B, making up nearly half of all mobile payments in 2017. Lower barriers to adoption, increased convenience, and early entrants striving for scale will be important drivers of growth.
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The Square-Starbucks Deal Will Accelerate Digital Wallet Adoption

Today’s announced partnership between the West Coast innovators Square and Starbucks represents a significant milestone in the advancement of mobile payment and digital wallets. Here’s why:

  • New entrant scale. The Pay With Square digital wallet has suddenly catapulted from a respectable new entrant in mobile payments, driving adoption within the long-tail of retail, to soon being present in every Starbucks, and in NYC, that’s just about every other block. Starbucks, the leader of in-store mobile payments, says that 1 million people per week use its mobile payment app to pay in-store. Its existing mobile payment customers will now be Square’s customers, giving Square an immediate boost in the number of locations and consumers it reaches within the market.
  • Accelerated adoption. As with the Starbucks app, consumers have only to download the Pay With Square wallet and load their funding source in order to use it. But unlike the existing Starbucks app, the Square digital wallet works with other merchants. According to Square, merchant acceptance is very quick and no-to-low cost, and Square promotes its participating merchants to users of the wallet. I think this set of factors will motivate other merchants — both large and small — to use this as an opportunity to trial mobile payments in their stores. Today’s announcement is unclear about whether the initial implementation will have Starbucks embedded in the Pay With Square wallet, but at a minimum, this deal gives Square broader visibility and awareness and the opportunity to earn the confidence of new customers with its digital wallet, which will drive broader adoption overall.
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The Digital Wallets Wars Are the Next Phase of the Payments Industry Transformation

In my coverage as Forrester’s new payments analyst, I'll serve consumer product strategists who accept or facilitate payments as they create, navigate, and capitalize on digital disruption within payments.

We are in the early stages of unprecedented innovation and transformation of the consumer payments industry, and emergence of a digital wallet marketplace is the next act. The definition of a digital wallet continues to evolve as innovations come to market, and the term is sometimes used synonymously with “mobile payment.” However, there are significant differences. Forrester defines a digital wallet as:

A digital service — accessed via the web or a mobile application — that authorizes payment transactions from one or more payment sources and facilitates other commerce-related features, such as offers, coupons, loyalty rewards, electronic receipts, and product information.

As new wallets are introduced into the market, we will see consumers and merchants accelerate their trial and adoption. Yesterday, Google announced a new cloud-based version of their digital wallet that intends to address many of impediments associated with their first version.  In my new report out today, titled “Why The Digital Wallet Wars Matter," I frame the emerging digital wallet landscape, provide a profile of early adopters and how to capture their attention, and outline which wallets will ultimately win in the marketplace. Here are the key takeaways:

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