Contact Less

In September 2016 Apple Pay came to support the world’s largest public transit system. It happened through the integration with Japan’s FeliCa and gave Apple Pay access to 160 million daily transactions.

This, along with many other milestones don’t get a lot of attention. Apple Pay is in what could be considered an attritional competition with non-consumption. There are no decisive battles won or lost, only the relentless pressure to make progress against a reluctance to change.

Before I go on, I should make the attrition/decisive type of conflict clear. The terms come from military science. A war of attrition is one where two sides essentially grind against each other and the winner is the one which lasts longest. A decisive battle is one where a conflict is won through a single, acute encounter where, due to either demoralizing or circumstance reasons, one side gives up. It’s the knock-out punch vs. the fight to exhaustion.

When applying this dichotomy to competition, we need to be careful about who we define as competitors. Note that I said that Apple Pay is in a fight with non-consumption. It’s tempting to say Apple Pay competes with some other payment system like Samsung Pay or Google Pay. But none of these alternatives are as powerful as the existing mix of contact payment systems: cash, credit card magnetic swiping and some other hybrid of codes and user experiences (especially online.)

When seen this way the challenger must compete through persistence. It’s impossible for Apple Pay to decisively defeat non-consumption in one battle. It takes literally millions of decisions for adoption: each consumer, each merchant, each bank, each point of sale. It’s a relentless grind of pitching, selling, demonstrating and shaming into action.

It’s been three years of this type of competition and progress may seem hard to spot. That is because we don’t see the big wins. We can only see small wins. The win in Japan, as significant as it might be (160 million daily transactions added to the addressable market) is still small compared to all transactions world-wide.

Merchants tell Apple that 90% of contactless transactions in the US were Apple Pay. Apple sees continuous growth and cited 500% grown y/y in payments last quarter. The total amounts to hundreds of millions of transactions worth billions of dollars.

Anecdotally, the points-of-sale supporting the system are growing. 76% of the top US merchants have agreed to deploy by end of this year.1

But the total market is probably measured in billions of transactions and trillions of dollars. There is a lot to go.

On the bank side, the US wins came quickly and thoroughly. 3500 US banks support Apple Pay through their issued credit cards. Globally the figures are unstated with some countries absent completely and others engaging quickly. Australia lags while the UK is mostly on-board.

The point of sale terminals are also largely not an obstacle with the current generations almost all being able to process contactless transactions. The amazing thing about this business is just how many sides there are to this market: merchants, users, Apple, banks, POS terminals, credit card companies, online payment systems, etc.

To see progress at all is surprising. Changing payment systems is extremely complicated due to the breadth and depth of infrastructure. There are already 5 million contactless acceptors in the US. But there are many more points of sale2 There is a long tail distribution for these systems so saturation will take a very long time.

Apple Pay is however only the first battle. Beside credit cards and cash, inside your wallet are more items that need to move into your devices: access cards, passports, driver’s licenses, IDs.

One unsung hero has been the device-based boarding pass. Security and gate agents don’t touch your phone so when you are invited to place the phone on the scanner at security or boarding, there is a sense of tangible and visible progress.  It was a rare sight a few years ago but I see it more and more each day I fly. The paper-less boarding pass has crossed the chasm into mainstream. Cash, plastic cards and IDs will also be deprecated. All it takes is persistence and time.

We all crave decisive battles and can’t stay tuned for the attritional outcomes. Nonetheless that is how most conflicts end up. This is the sort of conflict where a superpower wins and an asymmetric challenger falters. It’s resources and processes rather than enthusiasm that matter most.

1. Note that that does not mean 76% of all points of sale will have it but rather the commitment at the top is there. [↩]
2. How many exactly is actually hard to determine. [↩]