NEW YORK (MainStreet) — ApplePay, Apple's new digital payment system announced today, will allow consumers to leave their credit cards and cash at home and pay instead with the new iPhone 6 handset. But the much-heralded frictionless payment system is up against a significant obstacle: the majority of Americans still fear mobile payment platforms, especially in light of recent data breaches.
Despite the gospel out of Cupertino, American consumers are not planning to replace their wallets with smartphones anytime soon, with more than six in ten people who said they would either never or hardly ever use their phones to make purchases, according to a new CreditCards.com report.
Resistance to Change
Using mobile phones to make payments does not appear to be appealing to Americans despite its convenience, said Daniel Ray, editor-in-chief of CreditCards.com, the Austin credit card comparison website.
The survey found that only 4% of Americans say they would always use their mobile phone to make a purchase and only 9% said “most of the time.”
“Ingrained habits are holding people back,” he said. “Something needs to occur to break people out of their stupor. Apple has a big yawning gap to overcome. The topic of mobile payments has caused people to yawn.”
It remains to be seen whether ApplePay, which can store major credit cards such as American Express, MasterCard and Visa with its encrypted near-field communication (NFC) technology, will be a game changer for consumers who are tired of continued data breaches. A number of popular retailers such as Whole Foods, McDonald’s and Macy’s have already signed on.
Of course, the likelihood that a consumer will adopt ApplePay depends on his education level, income and age. The survey found that the proportion of people willing to pay with a mobile phone increases with education with 51% of those with a high school education or less say they would never use their cell phone to make a purchase compared with 36% of college grads. The number of people who would use their mobile phone increases with income, with 49% of those with annual household income under $30,000 say they would never use their cell phone to make a purchase versus 31% of those with annual household income of $75,000 or above. But the number of consumers willing to pay with a mobile phone decreases with age. Only 30% of Millennials say they would never use their cell phone to make a purchase compared to 38% of 30 to 49-year-olds, 49% of 50- to 64-year-olds and 64% of those age 65 and up.
Convenience vs. Safety
Still, ApplePay has the advantage of convenience as a one-stop-shop for transactions. Apple’s new technology is also attractive, because the company has essentially created a "one-time credit card” for each financial transaction, limiting the amount of information that can be accessed, according to Josh Alexander, CEO of Toopher, an Austin-based multifactor authentication technology company.
Retailers will know at a specific occurrence whether the consumer has enough money to pay for only that transaction.
“They have converted that liability to creating the payment authorization for only one occurrence and is only sharing a small facet of payment identity which can not be used for all transaction in the future,” Alexander said. “Apple is only breaking off a small sliver of your financial information. It cannot be misappropriated and used anywhere else.”
The technology is very “novel and much more secure” and a “very informed way of dealing with the future of the identity market,” Alexander said.
This technology is much closer to paying with cash, because it limits the amount of risk.
“If your information is compromised, it has no bearing on anything else,” Alexander said. “It limits the risk to something such as only stealing that one dollar instead of your identification and all the financial information attached to it.”
New technology is often slow to be adopted by the masses and many retailers have not invested capital in the new technology yet to make it widespread among both Apple and Android users, said Ray, of CreditCards.com.“There is reluctance among people since the swipe technology has worked for so long,” he said.
The effect of the numerous data breaches remains to be seen on whether it will result in drawing more people to adopt new technology that protects their accounts and passwords or retreat to cash, Ray said.
“When technology is as easy as lifting your phone as it is to lift your wallet, it will be a success,” he said. “We are not quite there yet, but it may be a step in the right direction.”
Mobile shopping can be easier, but the convenience comes at a cost, said Alexander.
Consumers should always avoid storing credit card information on their phone, not reusing passwords across online merchants and not clicking on links from emails or texts, he said. They should also avoid entering any personal information into a site or app to which they did not navigate.
“I recommend that consumers do use an additional way to identity yourself when possible such as adding add Toopher to your account,” Alexander said.
Consumers are becoming more cautious of payment transactions in light of the frequent breaches, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling in Washington, D.C.
“They want enhanced security and until Apple has a proven track record of consumer protection, it is unlikely that people will embrace this new technology,” she said. “Consumers think of Apple as being on the cutting edge, which this new offering suggests, but even techies have to guard their personal information.
--Written by Ellen Chang for MainStreet