Yay Apple Pay But Retail Mobile Payments Are Still Years Away

This post originally appeared on Streetfightmag.com.

This year has been a turning point in mobile payments, as Square, Paypal, along with Apple and others like SoftCard (formerly ISIS) have all made strides in their digital payment offerings, finally achieving top of mind with tech executives and media coverage.  Yet for all these updates and enhancements, these companies are barely cracking the shell on everyday mobile payments, and most have not built a scalable system to reach the millions of small businesses in the U.S.

In the fall of 2011, I cofounded a mobile payments startup originally targeting local businesses so they could easily accept mobile payments.  Here we are three years later – and after ultimately failing to crack the code myself — I now stare at three big issues that still apply today, and are the main reasons we will not be paying with our phone in everyday retail stores for a long time to come.

Merchant Hardware Challenges
The first issue has to do with the point-of-sale and hardware challenge that the average SMB faces. Mostly running outdated Windows terminals, Verifone or other proprietary card-swiping hardware virtually impossible to integrate with, these local merchants are constantly operating behind the technological curve.  Their machines are difficult to update with new software and are expensive to replace, meaning the update/replacement cycles tend to be measured in decades, not years. And when they do update to new and enhanced hardware, it still ends up being closed and proprietary (Square, et al) meaning it works only with that specific company’s app, but of course no one else’s. Simply put, the current POS market is fragmented, expensive, outdated and local merchants are offered little help in getting things up to date and working together.

Also, once the updated hardware is implemented and mobile payments are available within an SMB’s operations, there is the issue of employee education on how a mobile transaction actually works and how the merchant verifies the payment. Let’s remember, the concept of someone walking in and paying with their smartphone — not cash or physical card — is still foreign and hard to comprehend for most people.

What I found is that merchants just want to get paid, and anything getting in the way of that is discarded — fast.  Their business is not technology, it’s servicing their customers in a timely manner so any employer struggling to educate their staff will simply revert to what they know best, which is cash and credit card swiping.

Until a majority of US local merchants are running 21st century POS systems with mobile payment capabilities, we will not be paying with our mobile device.

OS Compatibility
“I’m sorry, you have an Android phone…. We only accept Apple phones!”

Imagine hearing those words Monday morning when you just want to pay for your latte and get on with your day.  Sounds ridiculous – yes – but it also looks to be a possible result of the ever growing war between Apple and Android operating systems.  Looking at currentglobal mobile shipment numbers reinforces the issue, as Android continues to dominate the global smartphone market, with over 255 million units shipped and nearly 85% of the market share (shipments) in the second quarter of 2014.

iOS experienced a slight drop in market share, down to just 11.7% from 13.0% in the same quarter last year.  As for general marketshare, Android hovers at more than half of all mobile devices operating in the world.

What happens to Apple Pay when that number gets even higher as the years go on?

screengrab

Fragmentation and lack of interoperability cuts like a knife in the back of the mobile payments market.  Our mobile payment utopia is being threatened by operating system lock-in, where both Apple and Android hope to give merchants “the best deal possible” for exclusivity and end up elbowing each other for mobile dominance.

More likely, Android will release its own version of Apple Pay and most of the market will be covered with some sort of mobile payment option. Awesome! Yet, aren’t we now back to the issue above, where the merchant must purchase multiple hardware systems so they are compatible with both Apple and Android?

And how are we – the end consumers – supposed to know what to do, what to use, when to use it, where to use it and where it’s accepted within this exclusivity war?

It’s all a big mess right now and it’s getting frustrating for all involved.  Things will not move forward until something or someone finds a way for these separate platforms to work together in some sort of local cloud.

User Experience Issues
Assuming the first two issues can be addressed and both the hardware and OS compatibility issues are taken care of, there’s always the user experience challenge to overcome.

What user experience issue? Well, it takes only a few seconds to pull out a credit card, hand to the cashier, have them swipe it through the reader and hand it back to you.  Simple as 1-2-3.

Humans are lazy. Unless the time it takes to pay using a mobile device in the retail store isequal to or less than the time it takes to pay with cash or credit card, it’s game over. Plain and simple. People will not put up with fumbling on their phone in line, opening an app, needing to input security pins and other codes – all of which take many seconds to complete.  And that’s assuming everything works correctly.

From early research of Apple Pay, it looks like they are really attacking the challenge of minimizing the amount of time from grabbing the phone to completion of transaction – especially with Touch ID – which is encouraging.  But again, since we are only now seeing it live in the wild one can only expect a bumpy road while early bugs are worked out of the system.  Until then, I am not a believer retail mobile payments will save any time for the merchant or the customer.

These issues may seem obvious but they are the exact reasons we are not using our mobile device to pay for everyday things at the register of our local merchants, and should not be overlooked.  Because of these and the slowness at which local merchants adopt new technologies, it will sadly be years before we see any significant uptick in retail mobile transactions.

Here’s to hoping I am wrong!

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