Apple Inc. vs Google Inc: Who Will Win The Mobile Payment Wars?

Which tech titan has an edge in the mobile payment market?

Leo Sun
Leo Sun
Aug 20, 2015 at 3:00PM
Technology and Telecom

The global mobile payment market could grow from $235 billion in transactions in 2014 to $720 billion by 2017, according to research firm Gartner. To tap into that potential growth, tech giants Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are beefing up their mobile payment platforms.

Source: Google.

But will mobile payments ever really catch on worldwide? Let's take a look at what these two tech titans are offering, and discuss their strengths and weaknesses.

Apple Pay
Apple introduced its NFC (near-field communication) payment solution, Apple Pay, last October. The service works on the iPhone 6, iPad Air 2, iPad Mini 3, the Apple Watch, and Apple Watch-compatible devices like the iPhone 5. It works with any NFC terminal which accepts Visa's PayWave, MasterCard's PayPass, or American Express' ExpressPay. Apple Pay is accepted at over 700,000 retail locations, and is supported by over 2,500 banks and credit card issuers.

Source: Apple.

Apple Pay's core strength is its unified base of hardware and software. The iPhone has a retention rate of over 80%, according to UBS, indicating that most iPhone users have upgraded (or will upgrade) to Apple Pay compatible devices. Since Apple already stores the credit card information from users who made purchases from iTunes or the App Store, the addition of a mobile payment service is a fairly seamless one.

Banks and payment networks pay Apple $0.15 for every $100 in processed payments. Based on that cut, Piper Jaffray believes that the service can generate $118 million in annual revenues in fiscal 2015 and $310 million in 2016. However, that would account for less than 1% of Apple's forecast revenues for both years.

Android Pay
Google has had a tough time in the mobile payments market. It launched Google Wallet four years ago, but AT&T, Verizon, and T-Mobile US blocked the service across most of their devices to protect their competing mobile payments system, Softcard. Many major banks also refused to work with Google, since the company wanted to mine customer data for purchase records and personal information.

To catch up, Google purchased Softcard and introduced Android Pay, its new NFC payment platform, which will launch later this year with Android 6.0 Marshmallow. Google claims that Android Pay will work at 700,000 retail locations, and be integrated with over 1,000 Android apps. However, Android Pay will work with less financial institutions than Apple Pay. The current list only includes ten partners, the most notable ones being Visa, Mastercard, American Express, Discover, and Bank of America. This lower level of support suggests that suspicions regarding Google's data mining practices remain.

Source: Google.

Android Pay faces two big challenges in adoption and monetization. First, only 2.6% of all Android devices worldwide have been upgraded to Android 5.1 Lollipop. If that fragmentation continues, few users will likely use Android Pay when it arrives with 6.0. Google also won't charge credit card providers transaction fees on Android Pay. It wanted a similar cut as Apple, but Visa and Mastercard adopted a "tokenization" card security system which blocked payment services from charging fees to card providers. Apple secured its three-year deal for Apple Pay prior to the installation of that system. Lastly, Samsung (NASDAQOTH:SSNLF) will launch its own payments platform, Samsung Pay, later this year. That move could hurt Android Pay by splitting the Android market.

Shared weaknesses
Apple Pay and Android Pay have several shared weaknesses. One major problem is merchant adoption. NFC terminals still account for just 10% of all point-of-sale (POS) terminals, since they cost about $500 more than traditional ones. Another challenge is the Merchant Customer Exchange (MCX), a consortium of merchants which back a competing mobile payments platform called CurrentC. MCX members, including Wal-Mart, are actively blocking Apple Pay and other NFC payments on their terminals.

To address both problems, Samsung introduced a new technology called "Magnetic Secure Transmission," which enables its smartphones to make payments on standard, non-NFC credit card machines through Samsung Pay. Samsung gained the technology through its acquisition of payments network LoopPay, which reaches over 30 million retail locations. That massive retail footprint could give Samsung an edge over Apple and Google later this year.

Realistic expectations
Apple certainly has a head start over Google in NFC payments, but both their platforms face tough challenges ahead. In addition to slow POS upgrades, the conflict with CurrentC, and Samsung's disruptive potential, both companies need to deal with unenthusiastic mobile users.

A recent poll by found that only 11% of respondents made an in-store purchase with a mobile device last year. But if those numbers start rising, Apple might gain ground faster in mobile payments than Google, since its ecosystem is less fragmented and has fewer privacy concerns.