Apple Pay and the Future of Plastic Payment Cards; Old Habits Die Hard

By Greg Weed, Director of Card Performance Research, Phoenix Marketing International

This editorial piece was featured on American Banker and Apple Daily Report.


The US consumer payments market is large and quite diverse and there are a number of key considerations when thinking about the future of plastic payment cards.  Certainly, the end of plastic is nowhere in sight – independent of the investment considerations that are being made now in technology and electronic payment companies.

The Apple Pay announcement has many significant and far-reaching implications and has cast a bright light into a murky mobile wallet payments environment. Some may wonder if Apple Pay is in fact poised to eclipse plastic card payments.  There are several factors in the pre-Apple Pay environment* which indicate that this will not happen anytime soon.

  • Current NFC terminalization, the wireless communication that allows for the flow of information between two devices, is extremely low at no more than 5%;
  • A segment of consumers are very wary about the security of NFC transactions with 22% of smartphone owners who have not used a mobile payments app indicating that ‘tapping a phone against a merchant terminal’ was a major security issue;
  • Smartphone adoption is not yet ubiquitous, but certainly on the rise with 65% of households reporting smartphone ownership;
  • Android phones are used more widely than the iPhones. Less than half of smartphone owners use an iPhone.
  • Nearly half of smartphone users reported they were unlikely to use a smartphone app for in-store payments. Among smartphone owners who have not used a mobile payment app: 48% indicated they were unlikely to use a mobile payments app; 38% were neutral on the matter; and 14% said they were likely to use a mobile payments app.
  • Only 22% of smartphone owners indicated they would consider a mobile payment from Apple, similar to Google (17%) but far behind banks (72%) and PayPal (41%).

(Consumer statistics referenced above are sourced from the 2013 Phoenix Consumer Payments Monitor survey, which collected data from 4,200 household financial decision makers in August 2013 – well before the Apple announcement or rumors of Apple Pay.  This data provides a baseline for the 2014 results which will be published in late September. The 2014 Consumer Payments Monitor will not only provide current information on mobile payment apps but also specific information consumer reaction to the iPhone6, Apple Pay and the Apple Watch.)

The Apple Pay announcement in conjunction with merchant investments in EMV-compatible chip card readers heralds the likelihood of substantial increases in NFC-ready terminals. And, Apple Pay’s fingerprint ID and tokenization technology will help reduce consumer NFC security concerns. Nevertheless, there is still a long way to go before scale can be achieved.

It is important to emphasize that Apple Pay brings direction and credibility to the NFC marketplace and demonstrates NFC’s future viability. And with that, the door is open for expansion of current NFC wallets (such as Softcard and Google wallets) as well as new entrants.  At the same time, it should be noted that NFC technology is 20+ years old and may ultimately be de-emphasized in favor of newer consumer-preferred technologies.

History and research suggests that plastic payment cards will remain viable – even though the use of digital payment cards will escalate over the next decade or two.  For example, in the bill payments industry, the incidence of online bill pay will never reach 100% and a high percentage of online bill payers still pay some bills by check.

Old habits die hard.

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