Apple Pay works on the new iPhone 6 and 6 Plus. Source: Apple.
Many companies have tried and failed -- or at least floundered -- to launch a massive mobile payments system. While other tech companies were the first to the market, Apple (AAPL 0.87%) kept to itself and quietly created its own mobile payments system.
Earlier this week the company debuted Apple Pay -- and it may have come at just the right time.
Picking up where others left off
Forrester Research expects mobile payments transaction to reach $90 billion by 2017.
So it's not surprising why tech companies want in on this, and why Google (GOOG 0.23%) (GOOGL 0.30%) launched Google Wallet back in 2011.
Google Wallet. Source: Google.
Like Apple, Google wanted to replace the credit cards in our wallets with digital versions on our phones. But after several years of dismal adoption, Google Wallet's ambitions have been diminished to basically a pre-paid debit card that's tied to the Wallet app.
To its credit Google tried partnering with credit card companies, the telecom industry, and some retailers, but the U.S. carriers eventually went on to launch their own form of mobile payments, now called Softcard, while security and standardization held Google Wallet back.
So how is Apple Pay different? One of the biggest advantage is Apple's 575 million iTunes accounts -- all with credit cards tied to them. Google never had that sort reach with credit card accounts, and its a big step to getting users to switch to mobile payments.
But having a massive amount of customers with their credit cards tied to a platform isn't the only advantage. Apple's late adoption to NFC and delay in releasing its mobile payment platform is coming just as the U.S. is about to make a massive transition to a new credit card payment system.
Source: Apple.
U.S. credit cards are DOA anyway
Most of world already uses a secure chip-and-PIN system in their credit cards, on a platform called Europay, MasterCard, and Visa, or EMV. The EMV system can use credit cards with embedded chips that transfer payment information in a similar way Apple Pay will work -- without actually transferring credit card numbers.
But the EMV system also allows for contactless payments via NFC.
The biggest holdout for EMV is the U.S., which is expected to have the systems in place by October 2015. To help fuel the upgrade process, after the October deadline either the bank or the merchant will be held responsible for credit card data breaches based on who has the lesser technology.
As merchants upgrade to EMV terminals, many add NFC technology at the same time, which could be used for Apple Pay transactions. But even with the looming deadline, the changeover will be slow.
The Mercator Advisory Group estimates 26% of U.S. merchant terminals will be EMV-ready by the end of 2015. Even if all of them included NFC so that Apple Pay would work, that's not a huge number.
Mercator said in a press release that "all sources indicate that the EMV train is finally leaving the station," but doesn't expect all the U.S. payment terminals to be replaced until 2020.
Promising but unclear
So while Apple Pay debuted as merchants are gearing up to change their point-of-sale terminals anyway, it's going to take a while before the new systems are in place. It's possible the launch of Apple Pay could spur companies to update their systems earlier than expected, but that's still unclear.
The advantage for Apple over all the previous NFC mobile payments systems is that the U.S. is now in full EMV transition mode. At the same time, the company is partnering with major U.S. banks and companies in order to ensure a successful rollout. Between Apple's partnerships, the popularity of its devices, and the timing of its launch, I think Apple Pay has the ability to be the most successful mobile payments system to date.
The key to its success will be whether or not consumers truly want mobile payments. As the U.S. transitions to EMV, consumers may be satisfied with a new, safer technology embedded into their credit cards without wanting to add mobile payments into the mix. But if there's any time NFC mobile payments are ready to take off, it's now.
