Apple Pay Growth Sours As Consumers Reject Digital Payments

New figures released last week show Apple Pay adoption and usage have 'barely grown,' according to digital payments industry insiders.
By Brian O'Connell ,

Corner an Apple (AAPL) - Get Report executive, and chances are, she'll expound on the wonders of the iPhone 6 Plus and crow about the success of the technology giant's iPad and Apple Watch line. She might even riff on how the company's pipeline is stuffed with new products and services, including Apple TV.

But mention Apple Pay, the company's two-year-old mobile wallet product, and that same executive may say "excuse me" and hit the bar for a cold one, rather than face up to the lethargic performance of Apple's prized digital finance tool.

It's not that Apple Pay is a bust, at least not yet. Instead, it's really a red flag about stagnant growth. According to PYMNTS.com, Apple Pay adoption has been stuck at 23% of iPhone technology users throughout 2016. In fairness, Apple Pay did grow from a 9% adoption rate in 2014 to 23% by the end of 2015, but its growth is grinding to a halt at the midway point of 2016.

Another survey, this one from First Annapolis released earlier in 2016, showed that 20% of iPhone users had used Apple Pay at least once in late 2015, but that figure was down from 22% in the second quarter of 2015.

The sentiment has not been positive from industry insiders. "I think Apple pay has unfortunately been a disaster," noted Eric Schiffer, CEO at Patriarch Capital, in a February, 2016 interview with CNBC.

Some financial technology experts say the sluggish growth of Apple Pay is tied directly to iPhone 6 usage rates.

"In the U.S., iPhones account for about 44% of the estimated 207 million smartphones," notes Andy Schmidt, principal executive advisor at CEB Tower Group in Boston. "Of these iPhones, approximately 29% of them are from the iPhone 6 family - the devices that support Apple Pay. That means that only about 13% of all smartphones in the U.S. are even capable of using Apple Pay."

Vendor adoption is another issue that's holding back Apple Pay, Schmidt says. "While 13% of U.S. smartphones are Apple Pay enabled, not all vendors accept it either at point of sale (POS) or online where the 'buy now' button reigns supreme, further decreasing potential adoption," he adds.

Financial consumers also love their rewards points they rack up using payment cards, a benefit that is muted with Apple Pay. "As of now, the only rewards that an Apple Pay user receives are the rewards that are tied to the card they are using," Schmidt notes. "This means they're unable to take advantage of store-based rewards unless they open up their physical wallet. And, if you have to open your physical wallet to get to your loyalty card, you are more likely to use your physical card for payment."

Additionally, slow acceptance of Apple Pay may also be linked to a general ambivalence by users on mobile wallets.

"The challenge for mobile payment remains the ability to have a consistent payment experience, which is not currently the case with near field communication NFC-based technology," says Ray Wizbowski, chief marketing officer at Entrust Datacard, a financial card issuance and digital transaction security firm. "While there are variations in how the transaction is communicated to the point of sale terminal, the biggest issue remains general ongoing use of mobile payments. I've seen several studies that show an initial spike as consumers try the novelty of using their phone to pay for the first time, but they quickly revert to a payment card because of habit, ease of use or acceptance issues."

But it's still relatively early in the mobile payments lifecycle, and the growth curve is long and slow. That doesn't guarantee success or failure for Apple Pay and other digital wallets; it just means it's too soon to tell, either way.

"This past year, it was reported that 14% of Americans were using mobile to buy holiday purchases, which actually seems high as the validity and security of mobile payments is still really an unknown," says James Goodnow, an attorney and technology expert at Fennemore Craig in Phoenix. "People are skeptical, and the early adopters are really the 'beta-testers' - so there's no track record yet."

Combine early consumer skepticism with the highly publicized Target security breach from a few years back (which included Goodnow's information), and it's "easy" to see why people are hesitant to jump onboard, he says.

Yet Apple Pay does certainly have its supporters, as Apple products always do.

"I use Apple Pay whenever I can," says Sally Elizabeth, an employee with PeopleClaim.com, a legal dispute settlement firm is Boone, N.C. "Since I rarely wear anything with pockets, I particularly like not having to drag a purse around."

"People do tend to ask me about it when they see me use it," she adds. "They say they're nervous about trying it. My guess is that it's just a slow-adoption thing."

In the "users know best" category, that "slow adoption" theme may be a winner. Apple certainly hopes so, because any other reason for Apple Pay's stagnant growth would be bad news in Cupertino.

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