ApplePay and Merchants

11 Sept 2014 – Remembering our loved and lost

Think about Apple: the world’s greatest consumer products company, maker of the world’s best most secure phone, coolest new watch, the best physical retailer ($/sq ft), holder of the most profitable handset, and the most profitable handset owners (demographic), the #2 brand in the world, the remaker of music, the inventor of new product categories, the platitudes could go on and on….  Apple did so many things right this week! Wow.. what a device! I mean devices.. !

What is the stupidest thing I could do here in this blog… really. Teach Apple a branding lesson!? Yep .. and I’m an engineer. Apple, please make sure that the Apple brand stops at the device.. Today “ApplePay” is accepted at any merchant that accepts Visa PayWave, MasterCard PayPass, Amex … There is no ApplePay acceptance mark that we know of.. so please lets keep it that way. My guess is that Apple is considering something here, this is the reason for the post. Logically, the reason Apple wants to brand payments, is that they want to change the payment process. As I pointed out previously, Apple has created a wonderful BLE experience, which the banks were not yet ready to support (with CP rates). My strong recommendation to Apple is to keep focused on the phone’s presentment of payment products across many protocols.. don’t create an acceptance brand.

As I stated in my blog this week, phones are becoming a commodity and evolving beyond how you orchestrate an individual’s life (music, photos, books, documents, mail, contacts, …) to how phone can help consumers INTERACT in their environment: Commerce, Healthcare, Fitness… With respect to the former.. Apple really doesn’t do much for retailers today. They don’t advertise, they don’t do much in maps and communication, they don’t do payments. In short, today Apple doesn’t bring a consumer into a store, improve engagement while shopping, build loyalty (to the store), or help with payment. Who helps the store with these activities? NCR, IBM, Micros, Oracle, IBM, Toshiba, Catalina, Datalogix, dunhumby, and a thousand others.

Given that Apple is one of the smartest companies in the world, my hope is that they have plans here that will become more fully known. Perhaps ApplePay was the consumer launch and that iBeacons and Accept ApplePay will be a new merchant launch. We can see from the enormous patent flow that Apple and Gimbal have put tremendous thought to physical commerce and iBeacons. But even if this is the case, Retail is a REALLY REALLY big space ($4 Trillion), for Apple to be successful in “Commerce” they must create a model where participants invest and other companies can make money too… After all, who would want to do business on the NASDAQ stock exchange if they captured 70% of the market’s value? Partnerships and extra-Apple value creation has been the KEY weakness of Apple.

Commerce Platform

When you build a commerce platform, the objective is to interconnect everyone. To interconnect everyone, you must have a case for “everyone” to connect, and a few open/defined standards. There are three basic approaches: a critical mass of buyers, a critical mass of sellers or remain neutral. Obviously, Apple operates on the consumer friendly “buy side” of commerce, and is consumer focused to its CORE. But buy side markets and networks are hard to maintain. Tilting too heavily toward any party is difficult (network effects), unless the consumer has already chosen your brand based upon the value you are currently creating. Amazon is the leader and great example here.. they are also buy side focused. Consumers GO TO Amazon to buy and Amazon CAN brand everything because the consumer entered their store with the objective of shopping.

The ApplePay rollout in eCommerce looks fantastic, with vendors like Stripe ready to help online retailers move today. ApplePay at the Point of Sale however is a big branding mistake (for Apple, banks and for retailers).  Retail is between a consumer and a merchant. Retailers attract consumers through product, promotions, price, or convenience.. each is different. Introducing a new consumer brand in retail that is BEYOND the retailers control is not something that makes sense..   not for a commerce orchestrator (Apple, Google, ..) or for the Retailer (in less than 18% of handsets). Whereas online, consumers entered the “virtual store” through their Apple device.. in the physical world.. Apple did nothing.. the consumer is not going through the Apple device. Thus my view is that ApplePay works online.. but not at the POS.. Whereas all other NFC solutions acted as a wallet “container” where a consumer purchased with the card of their choice, apple has branded the payment process..

Think about it this way: would starbucks throw out the most successful mobile payments application in the US in favor of ApplePay? No way! Why? Their consumers are using it..? sure that is one reason. But Starbucks demonstrates that merchants are best placed to deliver value, loyalty and drive consumer interaction in a way that benefits them. Apple has a rather poor reputation in working with partners, and agreeing to industry standards. Retailers considering ApplePay should talk to a few Apple peripheral manufactures on interfaces, standards, stakeholder influence and firewire. Apple can’t create an industry standard in ApplePay, it is probably not trying to either. In fact, for payments ApplePay is operating on the Visa/MA standards. Why would merchants want to allow Apple to build brand here? What is the FUTURE of allowing this brand in? Visa and MA don’t control it.. Retailers don’t control it.. and there is no commitment to industry standards where retailers can influence it.

As a commerce platform you can’t be biased. To create consumer value, you can’t push a consumer to a product, to a retailer, toward a payment method.. let the consumer decide. To create merchant value, you can’t push brand and proprietary connections in an area where you do nothing today. Remember the ApplePay product does NOTHING new that a current plastic card can’t do.. Visa and Mastercard acquired merchants with a new product 50 years ago.. cards delivered tremendous value: instant credit, open acceptance, defined standards, multi stakeholder rule making. Do you (merchants) want to give all this up for something that just holds the card?

What do merchants want? The MCX team are friends of mine. Their new CurrentC app may not make much sense to outsiders, but they are operating as an “Intel Inside” kind of model, a white label, “in the guts” kind of service that each MCX member can build around. Each retailer can customize how payments are done, how loyalty is done, how data is shared. ADS and Amex Serve also operate in this whitelabel merchant friendly model.. MCX may be a little bit dreamy.. and I don’t see a future where retailers will stop accepting Visa and Mastercard… but I certainly don’t see retailers jumping over themselves to let another brand come between them and their customer (unless it is VERY VERY neutral). Remember, payment works REALLY WELL .. there is no problem here (payment).

Merchants will want to have Beacons, but they want to support all consumers.. not just iPhone 6 consumers.. therefore Retailers will manage beacons they control (which will work across Android too). This means standards and open-ness. Merchants want mobile to work for EVERYONE in the store. From a platform perspective, support storage and transaction signing for any product/app. When I sign a transaction with biometics.. do I really need to call it ApplePay? Don’t you want everyone to build on your platform?

Apple recommendations

Apple, I strongly recommend adapting your commerce platform strategy to be much more like Intel’s. Open up iPhone 6 capabilities for others to use.. start talking up your APIs,  win in the handset.. create an ecosystem.  Think about it this way.. if ApplePay is the brand, who else will invest in making this work beyond you? Merchants will invest if it drives more sales,  higher margins, or if not doing it means loss of these. But retail is a zero sum game.. I’m not going to buy MORE gas and groceries.. so it is about switching in the flux.. once this flux dies.. so does your product.  This is not a long term commerce strategy.  Apple doesn’t need to build more loyalty with its consumers, and there is certainly very little upside (15bps) for the transaction. What Apple  needs to do: become the platform for commerce.

My recommendations for Apple

1) Break with rules and give strong hints that your merchant value proposition is coming.. soon

2) Hire some retail execs that can run with a commerce platform strategy, and move on the message

3) Create an IAL equivalent, and start working with MCX and other major retailers around the world.. LISTEN first..  find a way to make the iPhone work in Commerce.

4) Recast the ApplePay Brand as something that stays in the iPhone, and you are not going to push it on retailers…


Yes I have drunk the Google cool aide, yes I am one of their biggest fans, and they have been my absolute best client. So you can brush this off as pundit platitudes, but this is one of the few companies in the world I have ever seen where Fortune 100 companies CALL INTO and ask to meet with. Google is “in the Kimono” with every major Chief Marketing Officer on the planet, they have STRONG retailer relationships because they deliver value to retailers and manufacturers TODAY.    Thus, I maintain that Google is 5 years ahead in ABILITY to deliver value to merchants today: influencing consumers before they shop, engaging consumers while they shop, checking out, paying, support of private label cards, open platform for any app, no emphasis of Google’s brand in the store.   Google’s weakness.. retailer fear of data use.

This is actually the focus of my new company: CommerceSignals.. I want to find a way to enable 1000 new start ups, helping millions of retailers, MNOs and banks interact with consumers via mobile. Getting real time data is hard.. I want to make it easier.. for MCX, for Facebook, and for the next 1000 start ups. We are still in stealth mode, but more to come here shortly. (My investors not super excited I maintain this blog for fear of me pissing people off).


Congrats on tokenization.. what was rolled out yesterday was the best, most secure payment product in history.. I can’t wait to see this roll out in 100 other products and bank applications. Visa, MA and Issuers are winners here no matter what.

As a former Citi and Wachovia payments, mobile, internet guy I can assure you that banks were none to happy about the ApplePay brand. Remember Banks saw this future, and had a reason for resisting EMV chip and PIN. They created a tokenization initiative 4 years ago in the TCH to deal with this, with the hope of creating a new Visa. The bank mantra “if we have a token in the phone, we don’t want it to be a V token, or a MA token, .. we want it to be OUR token”. Logical … but I completely agree with Charlie and Ajay, that a token that wraps a V/MA card is still a V/MA card.. and there was no way for the TCH initiative to deal with the acquiring/acceptance.

The last time banks allowed a brand to tackle a new area of payments.. was PAYPAL.. and banks said “NEVER AGAIN”.. so much for that. My G2 says that banks took this same “Never Again” approach to the ApplePay brand until as recently as 3 months ago..  Apple won the game of chicken. I just can’t believe that banks are allowing Apple to BRAND payments.. it makes no sense for Apple either.. Unless perhaps they are buying FDC from KKR (this is a joke).



19 thoughts on “ApplePay and Merchants”

  1. Great post Tom. The benefit of being years late to the payments industry is that you get to observe what works and what doesn’t before you show your product. However, even with all of the opportunity to learn from the mistakes and successes of other wallets/payment apps, Apple neglected to recognize how important the merchant is to the equation. I’m told that API’s for Applepay are not planned to be released until next year, so there will be quite a wait before we see what Apple will even allow (or how much they will charge merchants for access).

  2. Hi Tom,

    Where did you see that ApplePay would be a brand at the POS?

    I watched the announcement about ApplePay and concluded:
    1. The ApplePay brand would certainly apply to in app purchases on iOS – and the Apple developer kit has been released with the appropriate logos for developers
    2. ApplePay would be what iPhone users will understand they are paying with when they use NFC on their iPhone / watch to pay at POS (and I agree that is a big win for Apple to the detriment of the issues and associations)

    It was much less clear that the ApplePay branding would appear in the physical world (or maybe I missed that part). I certainly agree that trying to push that brand into the physical world looks like an unnecessary, and uphill, battle for Apple.



    1. good question.. not everything was shown. Think the base flavor of apple pay.. merchants do nothing.. a higher level of integration will involve beacons and ereciepts..

    2. They’re not going to and would be fools to do so with the unreliability of retail payments with so many small and mid sized retailers. They show a generic NFC reader on their web site. The last thing a Apple would want is the customer getting mad at them for the merchants terminal being down,

  3. Thank you for sharing these deeply insightful thoughts with us, Tom. On the merchant side, I have been in touch with certain national retail federations (not THE national retail federation), and feedback is a mixture of fear and disappointment about Apple Pay. Not excitement, enthusiasm, or anticipation. Do you remember the days of the iPod when Steve Jobs brokered deals with the major entertainment companies for content that had previously seemed unattainable? He did it with all the moral authority of having successfully built Pixar into an entertainment powerhouse. Tim Cook now has the same moral authority in retail having built the most profitable stores (per square foot) on the planet. I hope he uses it to do something for merchants that nobody else could ever do. Nothing that was unannounced about Apple Pay this week comes close to that burden of duty.

  4. I’m a novice with this, but aren’t the tokenization and one-time codes an improvement to the plastic card? Maybe will prevent episodes like the Target and Home Depot hackings from occurring? If true, that seems like a big improvement to me.

    1. Good point.. a consumer improvement.. not a merchant improvement.. IF BANKS would tokenize every product you have.. then there is no issue. Problem is banks really like tokenizing credit cards and want to make them easy to use.. but most banks not as anxious on the debit side.. Merchants would accept this in 1 second if banks would just agree to treat all cards equally and allow the consumer to decide.. Make sense?

      1. How can you say this isn’t a benefit for merchants. It virtually eliminates chargebacks. Sorry “my bank” that was not my thumb that bought that. Hardly. It speeds the checkout process to two seconds moving the line. It doesn’t cost the merchants a dime. The banks are not going to pass the 15 basis points on to the merchants, they’re going to eat it is my understanding.

        I’ve been in the payment industry for 13 years and this is the first innovation that merchants actually want since the pin pad. I’m talking boutique stores and convenience stores. It’s a huge benefit to ISO’s such as myself and nowhere does Apple stick a logo anywhere. They would be fools to do so. The card reader in their ad looks like a Vivotech reader from 4 years ago. And despite what you say payments aren’t reliable whatsoever. The banks take weeks to replace broken terminals. They can care less about serving small and mid size merchants and have terrible service. They send out wrong pin pad connecting cables, leave small merchants with broken equipment for weeks.

        I agree the worst thing Apple could do is to have consumers believe that they have something to do with the actual taking of the transaction because terminals wear out and many small merchants have terrible phone lines and unreliable cable Internet connections. The risk Apple runs is being associated with the large banks who could care less about small retailers and never have for at least 13 years that I’m aware of. These banks will try and use this as a money making opportunity to sell equipment as First Data website already is.,but there are plenty of ISO’s who will be happy to provide the readers for free.

        These readers will be omnipresent a year from now, mark my words.

  5. Tom – great blog as ever.

    The way I see it, Apple are betting heavily on taking payments online.

    Call me cynical, but the Eddy Cue comment “we’re not in the business of collecting your data” actually only applies to transactions at the physical POS (he chose his words carefully) – and this was always going to be the case given the EMVco NFC standard. I don’t think Eddy’s statement applies to an online transaction, where the “payment sheet” and the use of the Apple Pay API to link through to one of 6 PSPs means that Apple will certainly see the transaction data – who you’re spending with, for what amount etc. Maybe they’re going to throw all that valuable data away, but I’d be surprised. I’ll certainly be scrutinising the T&Cs when Apple Pay is launched.

    This data, to your point made in an earlier blog, could help Apple drive commerce, and allow them to start participating in the 500bps world of advertising based on shopping habits rather than the 20bps world of payments. By building great in store, on device experiences, aided by wearables, Apple can help move more payments online and collect basket data – potentially subsidising the cost of processing to incentivise those merchants that are happy to share customer data with Apple.

    For me Apple Pay is a deliberate attempt to establish a payment brand that can host a stable of different payment methods and interfaces – BLE and QR codes could be complements or a competitors to NFC, and to cards more broadly. Tokenised clearing house payments could have a home under the Apple Pay umbrella – albeit with merchant support – either direct with Apple or indirectly via another organisation like MCX. By owning the user experience, they can obscure and marginalise the underlying technology and brands that make payments work today. I doubt consumers will care much how a purchase is routed provided it just works and they perceive it as secure.

    So I feel that this is just the opening gambit from Apple. They’re doing all the right things to get started in the payments world by joining forces with those that can get them established quickly – issuers, networks and their associated acquiring and merchant partners. They’re saying the right things to consumers in terms of ease, security and privacy.

    But with this stepping stone in place, and sufficient consumer (and merchant) adoption, there’s a lot of latitude for them to usurp the status quo.

    1. Good post– I agree with most of what you wrote except for advertising. Apple is a company that makes its money from the combination of hardware and software. Their efforts at advertising have failed, and moreover that is into in their DNA– they’ve never shown themselves to be in the least Googlesque about data.

      No what Apple is doing is making sure their platform is the desired one for what one does in mobile, and that platform includes the device, be it held or worn. This is where the do, and will, make there margin.

      1. Fair challenge David.

        I’ve looped back to the Apple site to see how they’re presenting this to consumers. Perhaps I’ve been overly cynical re tx data and advertising – but if I was going to start a service like this, I’d position it privacy first and then gently acquiesce later once I have traction.


        “Keep your purchases private.

        Apple doesn’t save your transaction information. With Apple Pay, your payments are private. Apple doesn’t store the details of your transactions so they can’t be tied back to you. Your most recent purchases are kept in Passbook for your convenience, but that’s as far as it goes.”

        1. I love it. A payments guy telling Apple how to successfully market a product. I sincerely doubt they need your help being the top grossing retail business and tech company on the planet. Don’t worry, they’ll do just fine. What I see happening in this blog is a bunch of payment industry people thinking they know what Apple should do. Did Blackberry and Palm know what Apple should do? Did Dell? Hardly.

          They’ll do it an resistance is futile. Get on the train or get run over.

          1. Apple is not really known for working with others well. They do great things directly for consumers.. but it is the Apple Way take it or leave it. Obviously a very successful approach for them so far. But Commerce and Payment is a tad different. It is all about how merchants and consumers interact, whereas Apple’s past successes were all about working with consumers in areas where they were in 100% control (music, photos, email, browser, siri, …). Retailers aren’t jumping over themselves to invite apple into their stores… they DO want Apple’s customers. American Express experiences a similar dynamic.

            Tell you what, I will buy you a six pack if Apple pay (current branding, scope) is successful in 2 years. Success? number of net new merchants that Apple has brought in (acceptance) and number of transactions processed in Apple pay over an above current NFC (~$60B in US).

            My rule of thumb is that consumer behavior will not change without a 20% improvement in value proposition. Apple’s value to consumer? none? to merchant? none.. Getting a card from consumer to merchant isn’t a problem either care about.. Payments work really, really well.

            My advantage? I know what the top 60 retailers, Google, Amazon, and top 5 issuers are planning… My disadvantage? I have no idea what Apple is…

  6. I agree. Apple is not known to work well with others.

    That being said, I hope that Apple know’s the merchant loyalty rewards program will be KEY if not a requirement in order for Apple Pay to succeed in the physical world.

    I really do hope it succeeds because it’s clear Apple has the best technology & ecosystem to make such a thing a success.

    My main question and request: when will Costco support Apple Pay with their partner AmEX??????

    Have you heard any word on Costco or any new retailers or banks/issuers?


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