Apple Pay Signals New Era at Cash Register
Not a single purchase has been made with Apple’s new payment system, Apple Pay, which will allow people to pay for everyday goods with their smartphone.
But the service, expected in the coming weeks, already has the technology industry scrambling to profit from a future in which apps could regularly replace cash, checks and credit cards.
If doubts remained about the far-reaching implications of Apple’s entry into the market, they were almost surely cast aside on Tuesday. In a surprise announcement, the e-commerce giant eBay said it would spin off PayPal, long the dominant digital payment service — a move meant to make PayPal more nimble in a fast-changing market.
“The era of digital payments is upon us,” said John Donahoe, chief executive of eBay, announcing the split to investors.
It remains far from certain that Apple Pay, which uses the fingerprint reader on recent iPhones to confirm identities, will become a hit. The promise of convenient and secure mobile payments has long been hailed — by start-ups and powerful companies like Google and Verizon. That promise has remained largely unfulfilled.
But the swift reaction by companies in the three weeks since Apple Pay was unveiled makes clear that how we normally pay for goods and services is ripe for transformation.
Square, a prominent payment start-up, plans to allow merchants the ability to accept Apple Pay transactions in the future. Stripe, a payment processing start-up based in San Francisco, has agreed to work with Apple to help more small businesses accept Apple Pay.
EBay’s announcement, meanwhile, was an abrupt about-face. This year, facing calls by the activist investor Carl C. Icahn to split the company in two, eBay’s executives vehemently argued that eBay and PayPal were more valuable together. PayPal probably has the most to lose if Apple Pay becomes successful.
“It used to be the case that the Internet was kind of the Wild West,” said John Collison, co-founder and president of Stripe. “Ten years ago, people were scared of checking out on random websites. Now, consumers are no longer unfamiliar with online commerce.”
Each previous form of mobile payment has run into one problem or another. Google Wallet, for example, was hamstrung by limitations on the types of phones and cellular networks with which it was compatible, leaving Google to focus its mobile commerce efforts elsewhere. Softcard, the product backed by major wireless carriers, has seen little enthusiasm for its mobile wallet for similar reasons.
As a result, cash and credit cards remain the norm in physical stores. So consumers have been unconvinced that paying with a phone at the register is any faster or safer than doing so with a credit card.
And online, only 11 percent of e-commerce spending happened on mobile devices in the second quarter, according to data from comScore, an Internet market research firm. The rest is made on desktop computers, largely because it is easier to enter payment information on a desktop than a smartphone.
“Apple Pay is good for everyone in the payments ecosystem because ultimately, it increases the amount of transactions that are happening on mobile,” Mr. Collison said.
With Apple Pay, which is expected to be available within a month, people can pay online or in person with their phone, using an iPhone’s fingerprint sensor to check out, an experience that Apple says will be faster and safer than offerings from its predecessors. Many major restaurant and retail chains, including McDonald’s, Whole Foods and Macy’s, have signed up to accept payments this way.
Part of the scramble among companies comes from Apple’s reputation for upending other industries. The iPod, for instance, revolutionized how consumers buy digital music. The iPhone has changed the way people use their cellphones in their daily life.
Companies large and small think Apple’s payments service could potentially have the same effect.
“Apple in particular has a reputation of harnessing and mobilizing an ecosystem,” said Denée Carrington, an analyst at Forrester Research.
Perhaps no company has more to lose from a new payment system than PayPal. Started in 1998 by a handful of entrepreneurs, PayPal quickly grew to become the dominant online payment company, widely recognized as a safe and easy way to send and receive money over the Internet.
In 2002, eBay bought PayPal for $1.5 billion, and PayPal has continued to grow. It now has more than 150 million regular users, and last year, it had revenue of $6.6 billion.
“Everyone is gunning for PayPal,” Ms. Carrington said. “PayPal needs speed and flexibility to effectively defend and grow its business.”
Shortly after Apple unveiled its payment product in early September, PayPal took out a series of full-page print advertisements in several major newspapers, criticizing Apple for its perceived weaknesses in software security.
When a purchase is made, the iPhone wirelessly transmits a one-time code along with encrypted customer data, which the company says is more secure than swiping a traditional credit card.
“We the people want our money safer than our selfies,” the advertisement read, an apparent reference to a recent episode in which some celebrities had nude photographs stolen from their Apple online storage accounts.
Mr. Donahoe said multiple factors played into the decision to split eBay and PayPal, including the successful Wall Street debut of Alibaba, the huge Chinese e-commerce company. By being separate from eBay, Mr. Donahoe said, PayPal would have more agility, an attribute some analysts and tech insiders have said that PayPal has lacked for years.
“PayPal hasn’t innovated in the United States in a decade, and it shows,” said Keith Rabois, a partner at Khosla Ventures and a former PayPal executive. “You’ve seen the rise of companies like Braintree, Stripe and Square” — three fast-rising payment start-ups of the last few years — “and all of them happened right under PayPal’s nose.” PayPal bought Braintree last year.
And some people said PayPal, especially if standing alone, could benefit from Apple Pay’s introduction.
“For one, there is no equivalent yet of Apple Pay on Android devices,” said Colin Sebastian, an analyst at Robert W. Baird and Company, referring to devices that run Google’s operating system. Android smartphone users, he said, could flock to PayPal, which runs on both Apple and Google operating systems.
And other competitors to Apple — like Samsung or Microsoft, which manufacture millions of smartphones, or Alibaba, which has its own highly successful payment operation in China — could more heartily support PayPal in the future.
In an appearance on CNBC, Mr. Donahoe said: “The way technology’s evolving, the way mobile technology’s evolving, we think you’re going to continue to see profound changes in how consumers shop and how they pay.”