One of the best features of Apple's (NASDAQ:AAPL) new payment system is its security. Apple Pay keeps your data between you and your bank, and the actual account information never leaves the new iPhones' "secure element," a dedicated chip in iPhone.
On the flip side, retailers aren't exactly happy with that data security. Retailers use the data from credit cards to build up customer profiles, and Apple Pay is hindering their ability to do so. That's why Wal-Mart (NYSE:WMT) and several other big-name retailers announced they would not support Apple Pay. CVS and Rite Aid turned off their terminals' ability to accept Apple Pay and joined Wal-Mart's Merchant Customer Exchange, or MCX.
Unfortunately for Apple, no matter how much people love Apple Pay, it still needs the support of retailers in order for it to succeed. So, what can Apple do to persuade those stores to turn their NFC terminals back on?
Engineered to solve problems
In Apple's keynote presentation in September, Tim Cook made a comparison between paying with a credit card and paying with Apple Pay. He pointed out that Apple Pay solves several problems for the user -- finding a credit card, swiping the card, making sure it's read, checking the ID, and handling the receipt. Apple Pay is tap and go -- the ID is in Touch ID and the receipt is automatically transferred to the phone. It also solves the security issues that have plagued retailers and their shoppers in the recent past.
Where Apple Pay is designed to solve consumer problems, MCX is designed to solve retailer problems. MCX's app, CurrentC, is a laughable attempt at mobile commerce, especially compared to Apple Pay. CurrentC uses QR codes displayed on a cashier's screen and scanned by a consumer's phone or vice versa to carry out transactions. Additionally, it doesn't allow users to use credit cards (unless they're store-sponsored cards); they have to provide bank account information.
The entire purpose of CurrentC is to avoid paying credit card fees while encouraging users to use membership rewards cards. Those aren't exactly problems facing consumers. As a result, CurrentC will likely flop.
The amazing thing is, Wal-Mart doesn't care. Former CEO Lee Scott reportedly said, "I don't know that MCX will succeed, and I don't care. As long as Visa suffers." Indeed, CurrentC seems designed for MCX to leverage against credit card companies instead of with users in mind.
How can Apple help?
As long as Apple keeps customer data private, retailers -- an essential part of paying for things in stores -- aren't going to be keen on using it. At its release, Apple Pay looked like it would work with loyalty programs, and it looks like it still could.
At the core of Apple Pay is Apple's Passbook app, which is already compatible with dozens of store apps that incorporate loyalty programs. If Apple can work with retailers to include loyalty cards and make them as simple to use as credit cards through Apple Pay, it would give retailers a good reason to get on board with Apple Pay.
Besides the advantage of increasing loyalty card use, Apple Pay integration would also increase retailer app installs. With an app installed on customers' phones, retailers are able to push notifications to shoppers as well as take advantage of Apple's iBeacon technology. The mere presence of the app on a user's smartphone works as an advertisement, and increases the likelihood the consumer will use the app.
Two user categories
Apple Pay is kind of like the iPhone. The iPhone wouldn't have succeeded without the support of wireless carriers. Apple Pay, likewise, can't succeed without the support of retailers.
The iPhone offered AT&T the benefits of attracting new customers and increasing its average revenue per user (by selling more data plans). Apple Pay doesn't yet offer retailers any benefits. In fact, it takes away benefits for retailers that are used to collecting data on their customers. Once it starts solving retailers' problems as well as the customers' problems, it will succeed.