Integrated Payments and Why Apple Pay Isn't the Be-All and End-All

We're hearing a lot about Apple Pay and other mobile device-enabled payment systems. While mobile capability is one facet of the solution, Apple Pay is simply piggybacking on existing card infrastructure rather than providing something that transcends it. Furthermore, merchants that offer Apple Pay are just layering another card-like payment option on top of what they've already been accepting.

NFC-based Apple Pay is primarily a technology developed for in-store payments. It works online too, but again, it's simply competing with plastic, which, for what it does, works very well. Its patchwork solution lacks the type of integration and, more importantly, the wow factor for the consumer that would make mobile payments irresistible.

Along these lines, I've recently been thinking about how important payments are to the overall retail picture, including e-commerce, m-commerce and good old brick-and-mortar, face-to-face sales. It's my contention that payments should be the crown jewel of the shopping experience. Nowhere is this truer than in online shopping, where the payments process can be the deciding factor for whether a transaction takes place. We've all had experiences of clunky web payment systems that leave us thinking, "If this is so complex, how safe could it be?" Conversely, Amazon.com's one-click payment system leaves you not only feeling secure, but catching your breath at how easy it all was.

Since we started by talking about Apple Pay, however, let's line item what the technology company/retailer has done right. It's leveraged its great brand to instill public trust in its product — certainly necessary for any mobile payment initiative. It's the Apple brand itself, not the partnerships with the brand, that's instilling this confidence.

However, there are several shortcomings, as noted. Apple Pay has very limited reach. First, it's only possible to use it on the iPhone 6 and 6 Plus — its only phone models that are NFC enabled — and the Apple Watch. Second, even as major retailers migrate their point-of-sale systems to NFC on account of the EMV liability shift which kicks in this October, not all merchants can accept Apple Pay yet. In fact, only about 2 percent of major retailers accept NFC in the U.S.

Therefore, the Holy Grail of payments acceptance — achieving the ubiquity of cash — is likely to remain a distant goal for Apple Pay. In fact, it probably should have launched north of the border; roughly 75 percent of Canada's major retailers accept NFC payments. In Canada, about 10 percent of domestic transactions are contactless, and that increases about 1 percent per month. By contrast, about 98 percent of major retailers in the U.S. don't have the NFC terminal necessary to accept ApplePay. McDonald's, Whole Foods and others will accept Apple Pay, but that's still far from ubiquity.

Moreover, NFC hasn't really worked anywhere to date. Not with Google Wallet, not with the haplessly named Isis Wallet (now called Softcard). None of these have achieved adoption at any real scale. On the other hand, there are others that have really worked, like Starbucks, LevelUp and Uber. Starbucks’ mobile app isn't NFC and doesn't even involve much technology. All the app does is create a barcode and have a laser scanner near the register scan it. LevelUp is QR code-based. The key point is that they're all tied to loyalty programs, and payment is central to the user experience.

Rewards programs like these have different ways of integrating data with payments, which Apple Pay doesn't have (in addition to making the payment central to the experience). Apple Pay is shiny, it looks nice, it's fun, but it could have been made much more compelling to consumers and merchants, simultaneously creating incremental value, following the Starbucks model. There has to be a method that consumers can adopt easily. For example, it has to easily work with all smartphones and there needs to be some method of giving more value to both merchant and user than existing payment cards and systems are able to offer.

How might you create this value? Let's look at M-PESA, the most successful mobile payment scheme on earth. It's not tied to any loyalty program; it was designed more holistically as a money transfer scheme and launched by the largest telecom. Therefore, it had two vital components: wide acceptance and capture.

1. Acceptance. First, the merchant needs to be able to accept different modes of payment at the POS. People want to be able to pay by phone, but they can't yet — at least not in any consistent way. They want to be able to use cash or credit, be it PayPal on their mobile, a debit or loyalty card, LevelUp, a mobile payments system that's connected to credit and/or debit, etc.

2. Capture. We're talking, of course, about data capture. For a payments system to be truly integrated, all the information needs to be analyzed in one spot — data from the transaction, data from social peer-to-peer and customer-to-merchant relationships, and social media feeds. That would mean focusing on a customer's online experience and the brand, understanding what the customer's interests are rather than what the brand is trying to be, and accessing those preferences and groups.

A seamless, integrated payment system starts and ends with this universal data repository. And there will be enough of it to generate insights, make personalized offers based on customers’ buying behaviors, and leverage partnerships between banks and nonbanks. It all comes from the data. You're always capturing the latest event. And it's much more structured and relevant than fire hose-feeds from social media.

Apple Pay is not capturing this information, and on the merchant end, doesn't have wide acceptance. Therefore, ultimately, it and partial solutions like it aren't sufficiently merchant or customer focused. Retailers need a system that's collaborative for all — merchant, user and bank (or transaction facilitator).

Apple Pay may seem to be the be-all and end-all, because, after all, it is Apple, but it doesn't address all the tenses of "be," where you have supply chain in the deep past, marketing and advertising in the recent past, payments in the present, and new data gathering for the future. Let's hope it's not the "end," either. Instead, let's hold out for a more elegant and seamless payments solution.

Amy ter Haar is an independent consultant who works with financial services institutions and retailers to address the integration of mobile and social commerce with consumer-permissioned use of big data.