Apple PayFrom the consumer point-of-view, Apple Pay is remarkably easy to use for mobile payments in stores.

The shopper waves their device, an iPhone or Apple Watch, in front of the compatible payment terminal. On the iPhone the user proves their identity by holding their fingertip against Touch ID, Apple's fingerprint sensor. On the Apple Watch it's unclear how payments are authenticated. A similar process is used to automate e-commerce orders, without having to reenter credit card information and addresses each time. 

In this note we'll take an early look at opportunities and pitfalls for Apple Pay, and how it will impact the payments industry as a whole, including legacy players.

  • APPLE PAY CEMENTS NFC AS THE MOBILE PAYMENTS STANDARD: One of the biggest barriers to mobile payments is that merchants have had a hard time figuring out which technology to adopt. Adopting near field communication terminals to accept payments from NFC-powered wallet apps like Google Wallet or Softcard (formerly Isis) cut out the hundreds of millions of consumers — 42% of the U.S. smartphone market — who owned iPhones, so retailers were reluctant.
    • Apple Pay could solve the chicken-and-egg problem: NFC is now a safe bet for merchants because the iPhone 6 and 6 Plus will be NFC-compatible with Apple Pay. Based on our research, around ~90% global smartphone shipments will be NFC-compatible from here on out. Meanwhile consumers, will find that large merchants will have NFC-capable registers. Apple Pay has a real chance at solving the chicken-and-egg adoption problem that has held back in-store mobile payments to date. It also gives Apple a quick entry into a market where competitors Amazon and eBay have yet to gain traction.
  • MCX Sales And LocationsBIIAPPLE PAY WILL LIKELY FACE SOME RESISTANCE AMONG LARGE PHYSICAL RETAILERS: Some may be wary of sharing their consumer data with Apple, while others have their own mobile payments strategies that may conflict with Apple Pay.
    • Rivals include a mobile wallet app called CurrentC, put out by the Merchant Customer Exchange (MCX), a powerful consortium of over 50 large U.S. retailers, including Walmart, Target and 7-Eleven. MCX merchants represent a fifth of U.S. retail sales. These merchants are bound to an exclusivity agreement and cannot accept other parties' mobile wallets, according to [...]