Apple's (AAPL +0.11%) mobile payment solution, Apple Pay, went live on Monday. The service, included in Apple's latest phones and tablets, allows users to replace their credit cards with their mobile device and their fingerprint.
But when it comes to shopping in store, it doesn't differ significantly from Google (GOOG 0.20%) (GOOGL 0.57%) Wallet or the other NFC payment solutions that preceded it. Yet that hasn't stopped analysts from labeling it the next great payment service; some have even suggested that it could eventually devastate eBay's PayPal.
Peter Thiel co-founded PayPal in 1998, and draws from many of the lessons he learned running the company in his new book, Zero to One. Although Thiel hasn't been involved with the company in more than a decade, he remains a pioneer in the online payments industry. In a recent phone interview, Thiel gave me his take on Apple's chances at replacing the wallet.
Inch deep, mile wide
Thiel isn't dismissive of Apple Pay, but he is skeptical that it will enjoy widespread adoption.
"It's possible [that Apple Pay will catch on] ... [But] I always think the best innovations ... you have some subset of users where you have a dramatic improvement. With PayPal it was eBay powersellers. Before [PayPal] it took 7 to 10 days to clear a check, and with PayPal [eBay sellers] could get the money right away. Or Stripe where you're targeting web developers ... So I think these sort of 'inch deep, mile wide' innovations, in aggregate they would add a lot of value, but it's very hard to drive adoption. Most payment systems work reasonably well even though we can imagine ways to make them better. But it's often the case that it's very hard to get from things that are 'pretty good' to 'better', because the gradient is just not steep enough to drive adoption."
Can Apple succeed where Google failed?
Apple Pay is, in some ways, better than swiping a credit card or paying with cash, but these advantages may not be significant enough. Current payment systems facilitate $12 billion worth of transactions daily -- clearly, consumers are getting along fine.
Only time will tell if Apple Pay will emerge as a mainstream success, but the recent failings of Apple's chief mobile rival, Google, suggests that it will be difficult. Although Google Wallet still exists, it has largely been written off as a failure. Several of its top executives have departed the company within the last year, and the product has seen little adoption despite hundreds of millions of dollars in investment.
To be fair, Apple was able to entice several major retailers to install upgraded Apple Pay-compatible NFC- terminals -- an issue Google Wallet struggled with. There's also some privacy perks -- unlike Google Wallet, Apple Pay doesn't collect data on its users' purchases -- but ultimately, Apple Pay's success as a mobile payments solution will come down to convincing iPhone owners that paying with their phone is easier than swiping a card -- something Google was never able to accomplish.
The CEO of eBay's Braintree division, Bill Ready, summarized Google Wallet's failure last year in an interview with Business Insider: "Solutions looking for problems. Wallet as in store payment method -- you really don't have a pain point there. There's few things in my life easier than swiping a card at checkout."
The same could be said for Apple Pay. Its quick fingerprint scan may be more convenient than Google Wallet's four digit pin, but not terribly so. If Google couldn't convince Android users to ditch their wallets at store checkout, it's hard to imagine Apple will have much more success.
