On October 20th, Apple (AAPL 1.19%) rolled out Apple Pay, a system for making payments with eligible Apple devices using a fingerprint for authentication. Less than two months later, the new digital payment service is already supported by credit cards representing 90% of credit card purchase volume in the United States. The rapid adoption of Apple Pay by credit card companies suggests that it won't be long before Apple Pay compatibility is ubiquitous across all credit cards in the United States.
More importantly, with this sort of momentum, Apple Pay has officially ushered in a new era of digital wallets. Plastic cards may soon be an antiquated novelty of the past.
Apple Pay. Image source: Apple.
The digital wallet revolution
Google -- not Apple -- arguably pioneered the first feasible attempt at making NFC mobile payments a reality. By pairing Google Wallet with NFC-equipped Android-based phones, Android users could store their credit card information in Google Wallet and use their phones as mobile payment devices.
But it will be Apple that will go down in history as the company that catalyzed the beginning of mass-market U.S. adoption of the digital wallet. Adding a level of security to NFC payments with Touch ID and boasting its massive, loyal customer base, Apple Pay is the first mobile payment service that appeals to all of the credit card companies.
The effect Apple Pay is having on the payment industry is unprecedented.
"While Apple Pay still accounts for a tiny fraction of total transactions, the new additions suggest that Apple has generated more traction for the service than any competing service," wrote Mike Isaac in The New York Times on Monday.
The future of the digital wallet, however, is not likely to be Apple-centric. Google Wallet has seen a significant boost from Apple Pay as well. Samsung is reportedly developing its own mobile payment system similar to Apple Pay. Of course, Apple also limits its own market for Apple Pay by only allowing the service to work with its devices.
Apple Pay works with the iPhone 6, iPhone 6 Plus, iPad Air 2, and iPad mini 3. It will also work with the Apple Watch, which should be released early 2015. Image source: Apple.
Significant hurdles must still be cleared
Persuading retailers to be as optimistic about Apple Pay as credit card companies, however, won't be quite as easy. Consider members of the Merchant Customer Exchange group -- a group that includes retail giants Wal-Mart, Best Buy, and Target. They have agreed not to accept Apple Pay as they continue to focus on their own mobile wallet app, CurrentC. The key difference with CurrentC is that it seems to erode the power of credit card companies and thus reduce transaction fees, an agenda that Apple Pay isn't in line with.
My guess is that credit card companies will continue to play a key role in payments over the long haul. If this is the case, the future of U.S. payments will still be one that relies heavily on credit cards, but the cards will be digital for seamless transactions. I also imagine that retailers -- even those from the MCX group -- will drop their stance on exclusivity and embrace the inevitable demand from consumers to use their digital wallet of choice.
Of course, another hurdle for retailers, unless they already have them, is the NFC-capable registers they must purchase if they want to accept Apple Pay. And some retailers may want more data supporting the case for NFC-based mobile payments before they cave and make the investment.
But it's worth noting that Apple's early traction with retailers is promising. You can already find Apple Pay at Walgreens, McDonald's, Disney, Whole Foods, Staples, and many other retailers.
Indeed, The New York Times says the initial adoption of Apple Pay is the key catalyst behind Forrester Research's bullish bet that annual mobile payments volume will reach $142 billion by 2019.
There's no turning back. The digital wallet revolution is upon us. And thanks to Apple's formidable head start, the company looks poised to benefit significantly from it.
