2015 Prediction Update: Tim Cook predicted that 2015 would be the year of Apple Pay. We predicted the opposite: despite its efforts, Apple Pay would not emerge as the mobile payment leader. Who is right? We focus on the US mobile ecosystem and consider market fragmentation, the state of NFC adoption and the competing CurrentC to see if Apple’s efforts paid off in 2015.

- Industry Prediction Update

Positioning Apple Pay in 2015

At the end of 2014, Cartesian predicted that Apple Pay would not emerge as the mobile payment leader in 2015. The fragmentation of ecosystem participants, strength of other competitors, lack of NFC on legacy iPhones, and pushback from merchants associated with CurrentC were all significant challenges to widespread adoption of Apple Pay.

2015 Prediction: Apple Pay will not emerge as the mobile payment industry leader

Despite these challenges, Apple CEO Tim Cook made the confident prediction in January that 2015 would be “the year of Apple Pay”.

Why Play in Pay?

In the past year, Apple Pay has made significant progress since its inception in the US back in October 2014. Equally, we have also seen other smartphone ecosystem giants introduce their solution in their play to establish a lead in the growing mobile payment space in North America: Google has Android Pay and Samsung has Samsung Pay.

While consumers are unlikely to purchase smartphones based on the mobile payment function - only 3% of iPhone 6 users noted Apple Pay as the reason they bought the iPhone 6, according to a PYMNTS.com survey in April 2015 - a leadership position in the mobile payment space can add significant value to smartphone ecosystems in a number of ways. An integrated mobile payment platform would provide further operating system lock-in through a more unified user experience. Secondly, a widely adopted mobile payment platform can increase overall consumer spending through a more streamlined and simplified payment process within the ecosystem and create additional partnership opportunities with retailers or credit card companies. Finally, a dominant position in the mobile payment space would allow major smartphone players to expand their existing products & services portfolio to new areas such as financial services, which is becoming increasingly mobile-oriented.

How it’s Playing Out

The mobile payment market is still emerging. In 2015 several obstacles to adoption have arisen to slow down the adoption of the technology among both consumers and merchants.

An essential factor in the success of mobile payments and one that has so far hindered the growth of the mobile payment industry is the alignment of consumers’ and retailers’ interests. Mobile payments like Apple Pay can only work if both the consumer and retailer have near field communication (NFC) compatible technology, which enables data transfer between two nearby points without the need for an internet connection.  Newer phones and technologies (iPhone 6 onwards, Apple Watch) are enabled with the technology, but legacy iPhones are not.  Right now, about 40% of iPhone users have iPhones with NFC technology, and while this saturation rate grows with every new iPhone purchased, this metric represents only a small portion of consumers. This is not yet a large enough number to incentivize retailers to buy NFC-compatible payment terminals, which cost around $500 according to the Wall Street Journal, and so NFC terminals represent only about 10% of all point-of-sale payment terminals today. So the industry is stuck: consumers won’t fully adopt mobile wallets until compatible payment terminals are ubiquitous throughout the stores in which they shop, and retailers aren’t incentivized to install those terminals until more consumers rely on mobile wallets for their transactions. While Apple Pay usage has increased in 2015—about 17% of consumers with compatible iPhones have now used Apple Pay compared to 9% at the end of 2014— the mobile payment industry, and thus Apple Pay, cannot mature until there is further alignment between consumers and retailers.


Apple Pay Use Nov 2014-Oct 2015 Have you ever tried Apple Pay?


Apple Pay also faces various competitors, which is also a problem for the industry as a whole. Major players include Alphabet and Samsung, which have established mobile payments applications, while others such as PayPal and Facebook have apps in development. This competition hinders industry maturity, as consumers are faced with many choices for mobile wallets, none of which are accepted everywhere. Apple Pay arguably has the most momentum of these apps: Apple claims that within every $3 spent through mobile payments, $2 are from Apple Pay. However, the lack of consolidation and predictability between retailers has repressed wider customer adoption and thus Apple Pay’s growth.

A factor that has not hindered Apple Pay as much as was expected is CurrentC. CurrentC is a mobile payments app announced last year by a consortium of retailers known as MCX, which includes many major retailers such as Dunkin’ Donuts, Walmart, and Target.  In October 2014, CVS and Rite Aid, both members of MCX, disabled NFC payments within their stores to provide support for CurrentC. However, the launch of CurrentC has been delayed and the app has yet to roll out. The delay of the launch has coincided with growth of NFC-capable phones and mobile payments in general, and contracts that some MCX members had signed banning them from accepting competing mobile payment methods expired earlier this year, opening up the playing field for Apple Pay. Rite Aid is again accepting Apple Pay, and many other merchant members of MCX are joining. Merchant support of CurrentC was its major competitive factor—even after the app launches, it will have to gain enough traction for consumers to download those apps amidst phones that come pre-configured with proprietary mobile wallets.

In today’s fragmented and developing mobile payment industry, both Samsung Pay and Android Pay (from Alphabet) are still playing catch up to Apple. A December survey from USA Today shows that 20% of all eligible Apple Pay users have used Apple Pay compared to only 14% of Samsung Pay and Android Pay users combined.

In an effort to catch up to Apple Pay, both Android Pay and Samsung Pay have launched initiatives to increase adoption. In South Korea, Samsung Pay recently partnered with local transportation systems to allow South Koreans to pay for commute using Samsung Pay, an initiative similar to what Apple Pay has done in the UK. Prior to the holiday season in the U.S., android pay partnered with donorschoose.org to donate $1 toward special education projects for every purchase made using Android pay from late November to the end of the year (up to one-million dollars), in the hopes of increasing adoption during peak shopping season. These initiatives indicate that the two other major mobile payment providers are still trying to catch up to Apple Pay through emulating what Apple has done (Samsung Pay) or partially altruistic efforts to kickstart its own mobile payment solution (Android Pay).

The mobile payment industry’s goal of eliminating physical wallets is still some time away, and the current landscape is still fragmented. However, in 2015 Apple emerged as an early leader in the nascent industry.

In the ten weeks leading up to our Year End Review, read about the ten events and themes we believed would shape the technology, media and communications industry in 2015. Which ones are leading the transformation?

Read about:

Coming soon:

  • Soft SIM
  • OTT and the cable industry
  • Cloud services
  • Wearables
  • The sharing economy

> Read our industry predictions for 2015 in our December 2014 Coordinates Newsletter