Apple Pay is currently offered only to holders of some American debit and credit cards, but the system can be used far beyond the borders of the United States. I recently took a round-the-world trip, and used the opportunity to research Apple Pay globally for TidBITS.
Apple Pay requires a recent iPhone (an iPhone 6 or 6 Plus, or a iPhone 5 or later paired with an Apple Watch) with a credit or debit card’s information recorded on it. So far, only cards issued by select American financial institutions can be used, but Apple is planning to engage banks in other territories to expand coverage. Some countries will present more of a challenge than others.
I started my research in my home country of New Zealand. EFTPOS — electronic funds transfer at point of sale — is so entrenched in New Zealand that the country is largely cashless. From the largest retail outlets to mobile coffee vendors parked at the side of the road, almost anyone who will sell you something will take your payment electronically. As vendors update their EFTPOS terminals, MasterCard’s PayPass and Visa’s payWave are steadily gaining ground; if I see the radio-waves logo on a payment terminal, I take out my iPhone 6 Plus and make a payment, effortlessly, using Apple Pay and my American bank account (a perk of having moved to New Zealand from the United States). No additional setup is required for the retailer — the card reader sees my iPhone as though it were a credit card.
Across the Tasman Sea in Australia, contactless payments are similarly widespread, and as I passed through Sydney, my wallet stayed in my pocket as I paid for train tickets, coffees, a hotel room, and a bottle of water from a vending machine at the airport. There was one surprising holdout, though — the Apple Store. Apple’s retail presence in Australia currently uses card readers built into large iPod touch cases, and these machines read magnetic stripes, meaning that possibly the largest retailer in Australia not to support Apple Pay is Apple.
The United Kingdom, another stop on my journey of Apple Pay discovery, similarly has embraced contactless payment, with many banks issuing compliant cards, and an increasing number of retailers ready to handle them. Indeed, when I tried to pay for a pint of milk in a Tesco Express in Salford with my iPhone, the cashier apologised that their machines did not support contactless payment — clearly, the technology is becoming sufficiently established that its absence, not its presence, is notable. Indeed, after my trip, Apple has announced that Apple Pay will be officially available in the UK in July.
In these countries, then, Apple should have little problem in promoting the use of Apple Pay. Merchants increasingly have the required kit in place. Banks, having implemented payWave and PayPass in their cards, are presumably amenable to further customer-experience enhancements, and will want to see themselves on Apple’s Web site, alongside their competitors, as Apple Pay partners.
More problematic was Japan. I spent the 1990s in Japan, and saw an almost glacially slow movement away from an essentially cash-based retail economy. Even today, while larger shops and department stores accept credit cards, for many smaller retailers, even in Tokyo, cash is the preferred means of payment. Change is starting to happen, slowly, but not entirely in a direction that Apple might prefer.
Suica is an electronic payment system that was conceived originally as a prepaid travel-card system for the Japan Railways East network; it’s now accepted increasingly by chain stores from convenience-store chains such as FamilyMart and 7-11 to larger retail groups such as Yodobashi Camera. While it’s primarily a Tokyo-focused system, the Tokyo area’s 32 million people represent a quarter of the population of Japan, and the Suica card is increasingly becoming compatible with Pasmo, another Tokyo-based payment system, and other local payment systems across Japan.
Operating alongside Suica and Pasmo is Osaifu-Keitai. The name comes from two Japanese words meaning “wallet” and “mobile phone”; the system is, essentially, a Japanese analogue of Apple’s Passbook and Apple Pay systems. Osaifu-Keitai is based on the FeliCa electronic payments NFC chip; any mobile-phone manufacturer can implement an Osaifu-Keitai solution in its phones simply by incorporating a FeliCa chip. The chips are not found in iPhones; since this is a rival system, developed and controlled by Sony, it seems unlikely that Apple will be willing to incorporate FeliCa into the iPhone.
This means that if Apple hopes to make inroads into the Japanese retail economy with Apple Pay, it will need to pitch Apple Pay as an alternative to Osaifu-Keitai and Suica, which will be difficult. The Japanese culture is not known for embracing change, and these two locally developed payments systems could prove to be as much change as Japan is willing to buy into. A typical Japanese consumer currently has a Suica card in his or her wallet, is increasingly likely to have a FeliCa-enabled smartphone, and is now becoming accustomed to paying for everyday purchases using one of these two methods.
The use of credit cards, at least as a Western visitor might understand the idea, remains about as unusual as it was when I was shopping in Tokyo in the 1990s. When I tried to pay for a few souvenirs in Omiya’s Lumine department store, or Tokyu Hands or Kinokuniya in Shinjuku, my American MasterCard debit card was accepted, but not my iPhone. Indeed, in all three shops, I handed my card over to a shop assistant who swiped it through a card reader that was out of my reach and then placed the card on a little blue plastic tray to return it to me — reimagining this system to enable contactless payment with a card reader on the counter might be a challenge, even for Apple. Contactless terminals are common at station kiosks, speeding up the buying of a manga for the morning commute, but they talk to the Suica or Pasmo networks, not the banks.
However, Osaifu-Keitai is slowly but steadily spreading as a means of credit-card payment. With this homegrown system already in place as Japanese consumers begin to embrace credit-card payments through their phones, it seems likely that Osaifu-Keitai will become the de facto standard in Japan for electronic money.
NTT DoCoMo, the company that is spearheading the use of Osaifu-Keitai in Japan, is working with MasterCard to expand use of the system, across Japan and possibly globally. The implication is that a MasterCard card, perhaps regardless of issuing bank, would be a prerequisite for customers wanting to use Osaifu-Keitai. Contrast this with Apple, which, by listing cooperating banks and credit unions, suggests that individual institutions, rather than the network over which payments are processed, are essential for uptake. If it hopes to tap into the Japanese contactless-payments market, Apple would thus need to work with a significantly larger number of institutions, which may prove difficult.
No airline flies from Tokyo to Manchester, England, so I found myself breaking my journey in Dubai. I spent a relatively short time there, but did manage to visit the Dubai Mall, reputed to be the largest of its kind in the world. Shopping is, indeed, a significant activity in the Emirate, and Apple will, it seems fair to say, want a part of the payments action. Fortunately for them, my brief excursion through the city suggested to me that credit-card payments are sufficiently common that, if the hardware is available, Apple Pay should be able to establish itself quite well.
Having travelled to Australia, Japan, the UAE, and the UK to explore Apple Pay around the world, I next found myself in the United States. Specifically, in Clearwater, Florida, which I called home until 2009. I had assumed that I would be able to pay for anything and everything in Florida with my iPhone; I was surprised by how wrong I was.
As I had learnt from my experiences in New Zealand, Australia, and the UK, Apple Pay works only if a shop has a payment terminal that handles contactless payments; if that hardware is in place, Apple Pay is effortless, but without it Apple Pay is a non-starter. The latter proved true in a surprising number of instances. Starbucks, a company that has wholeheartedly embraced Apple’s technologies in the past, has enabled some form of Apple-related payment in their outlets, but buying a flat white in Starbucks requires use of a dedicated iOS app, rather than the standard Apple Pay mechanism that even the smallest, most remote coffee shops in New Zealand can handle. Other stores were better set up to handle Apple Pay — Home Depot’s self-service checkouts, for example, took a payment from my iPhone. But the most interesting non-complier was to be found further inland.
While in Florida, I took my family to Walt Disney World; I was in Florida; how could I not? Thanks to Steve Jobs’s position on its board, Disney is as closely partnered with Apple as any other company in America. But it also has its own ideas about payments. We checked into the Port Orleans, our favourite Disney hotel, and were issued with Magic Bands, contactless payment devices that were, in effect, Disney Pay (you’re welcome, George Kalogridis). As well as opening the doors to our rooms, in much the way that an iPhone can open the door in a Starwood hotel, our Magic Bands also paid for our meals and held park-admission data. Paying for food and merchandise on Disney property was easy — I just held the band up to a reader.
And so Apple’s Apple Pay challenges in America started to become apparent. In smaller countries, such as New Zealand, or those that tend to follow U.S. technology trends, as is the case in the United Kingdom, for example, Apple Pay should be able to step in quite readily. But in the United States itself, where nationwide chains are big enough that they can start to develop their own systems, there is the possibility of rival systems emerging that will require retooling for compatibility with what might be perceived as a competitor. That said the main one, MCX’s CurrentC, which is backed by Walmart, Best Buy, CVS, Lowe’s, Rite-Aid, and more, has been dogged by criticism and may never be able to achieve sufficient momentum for liftoff.
But even if an otherwise large company lacks the resources required to develop its own alternative to Apple Pay, it might find itself stumbling under its own size. A single store can switch out credit-card terminals overnight. But a corporation the size of Starbucks will not be as nimble. Sticking with Starbucks as a classic example of how this problem could play out, let’s say that the company decides to switch to contactless terminals, in part to accommodate Apple Pay. Starbucks currently operates, either directly or through franchises, nearly 12,000 branches across the United States. Retooling payments on this scale is non-trivial, and training on the new equipment would be required in all 12,000 stores.
Apple will need to provide a compelling business case for companies like Starbucks, one that demonstrates a healthy return, in order to convince them to adopt Apple Pay. Apple might also have to work directly on the few holdouts, such as CVS or Rite Aid, who are actively blocking Apple Pay (see “The Real Reason Some Merchants Are Blocking Apple Pay… for Now,” 26 October 2014), and other near-field communications payment systems, in favour of their own alternatives. Other chains, such as Home Depot, have been inconsistent in their policies toward Apple Pay, but my experiences around the world suggest that companies either make a conscious and specific decision to prevent the use of Apple Pay (Rite-Aid), generate their own parallel payment systems (Disney), or simply get caught up in the momentum of contactless payment (as is the case across the UK, New Zealand, Australia and many smaller American stores).
American restaurants will also struggle, incidentally. Wait staff currently take cards away from customers to process them at a remote terminal, and then bring card and receipt back to the customer. It’s not immediately obvious how these payments will be managed using an iPhone; I can’t imagine many customers will hand over their phones for payment, even if some way of circumventing Touch ID were implemented. This is a function of how bills are paid in American and British restaurants. In Japanese, Australian, or New Zealand restaurants, customers pay for their meals at a cash register on their way out — and tips aren’t expected. I understand that in at least some restaurants in Canada, which uses the chip-and-PIN system that’s commonplace everywhere except America, a waiter will bring a portable payment terminal to a diner’s table to complete the transaction. But as long as meals are paid for at the table, restaurants will need to make significant upgrades to their payment terminals to accommodate Apple Pay.
In short, Apple Pay looks set to gain ground in many, but by no means all, major territories around the world. More surprising is that the United States, Apple’s home turf, might turn out to be one of the toughest nuts to crack.