In a January earnings call with investors, Apple Inc Chief Executive Tim Cook made a confident prediction: "2015 will be the year of Apple Pay," he said.
Since then, the company has aggressively courted retailers - and claimed significant success. "We've spoken to all of the top 100 merchants in the U.S., and about half will accept Apple Pay this year, with many more the following year," a company spokesperson recently told Reuters.
But interviews with analysts, merchants and others suggest that Apple's forecast may be too optimistic and that many retailers remain skeptical about the payment system.
The service is one of Apple's biggest bets, a chance to tie customers more tightly to its phones and its new smart watch, as well as to take a tiny bite from every retail transaction.
To assess Apple's progress, Reuters worked from the National Retail Federation's list of the top 100 U.S. retailers, surveying the 98 that had brick-and-mortar outlets (two of the top 100 sell only online). Eighty-five supplied detailed responses, and 11 others supplied information only about whether or not they accept Apple Pay. Two did not respond.
While some of the country's top merchants said they use and like the mobile payment system, fewer than a quarter of the retailers said they currently accept Apple Pay, and nearly two-thirds of the chains said categorically they would not be accepting it this year. Only four companies said they have plans to join the program in the next year.
The top reasons retailers cited for not accepting Apple Pay were insufficient customer demand, a lack of access to data generated in Apple Pay transactions and the cost of technology to facilitate the payments. Some merchants said they were holding out because they plan to participate in a new mobile payment system to be launched by a coalition of retailers later this year.
A small but growing market
Reliable statistics on mobile wallet payments are difficult to obtain. Neither the companies offering payment systems nor credit card issuers will disclose detailed data about usage. But analysts agree that they are used for only a tiny percentage of U.S. retail transactions.
An online survey conducted by Verifone (PAY.N) and Wakefield Research released in January 2015 found that mobile wallets accounted for about 4 percent of the overall payments market for in-store retail transactions in the U.S.
How that market is divided up among the major players is not entirely clear. An ITG Investment Research study conducted in November, soon after Apple Pay was launched, found that the service accounted for 1 percent of digital payment dollars, while Google Wallet accounted for 4 percent.
Since then, analysts agree, Apple Pay's market share has grown dramatically. "In the last six months or so there has been more acceptance of Apple Pay," said Steve Weinstein, senior internet analyst for ITG. "Google Wallet has kind of stalled out."
In January, Apple's Cook, citing internal data, said Apple Pay accounted for two out of three dollars spent in "contactless payments," but the company did not provide data to back up those numbers.
Still, it is clear Apple Pay has made considerable progress in signing up vendors, with more than 700,000 sites as of March 9, the last time Apple updated its numbers, including self-service terminals such as vending machines, laundromats and parking meters.
Interviews with retailers suggest that the company has relied on aggressive marketing to recruit participants. "They have been pushing hard and it's been that way for months," said the representative of one large retailer that has no plans to accept Apple Pay. "They have called and tried to persuade us even after we communicated our decision to them." The company hasn't adopted Apple Pay, he said, because not even a "small percentage" of its customers have asked for it.
Speed, convenience and security
Many companies that accept Apple Pay report that they and their customers are happy with it. Whole Foods (WFM.O) spokesman Michael Silverman said that Apple Pay transactions accounted for 2 percent of its sales dollars as of March and that it expects use to rise.
"Our shoppers are really enjoying the speed, convenience and security of Apple Pay," he said.
But for other retailers and consumers, Apple has yet to answer the question "what is in it for us if we use Apple Pay?" said Alberto Jimenez, program director for mobile payments at IBM, which provides technology to mobile wallet makers and retailers. Jimenez would not say whether Apple is among their customers.
The program doesn't offer loyalty rewards to customers, as companies such as Starbucks (SBUX.O) do with their mobile applications, nor does it provide customer information to retailers about Apple Pay users.
For 28 of the retailers surveyed by Reuters, lack of access to data about customers and their buying habits is a key reason they don't accept Apple Pay. "One of the biggest concerns is data control," said Mario De Armas, senior director, international payments at the world's largest retailer, Wal-Mart Stores Inc.
When a credit card is swiped through a terminal, the retailer gets the name and card number, which when combined with publicly available demographic data like address, phone and email, helps retail chains send well-targeted promotions to customers.
Wal-Mart and 18 of the other top retailers are part of a coalition challenging Apple Pay with a mobile wallet called CurrentC, which is scheduled to launch in mid-2015.
Retailers participating in CurrentC won't be allowed to accept any other mobile wallet until 2016, according to a senior official at MCX, the company launching CurrentC. For that reason alone, 19 of the NRF's top 100 retailers will not be able to accept Apple Pay before the end of the year, although three of them said they plan to accept Apple Pay by early 2016.
Another reason cited for not accepting Apple Pay by retailers surveyed by Reuters was the cost of terminals and computer upgrades required to accept a mobile wallet.
"What is the return on investment?" asked Maureen Elworthy, director of treasury at Ahold USA, which runs supermarket chains like Stop&Shop, during a panel discussing Apple Pay at an industry conference. "The [return] is negative," she said.
She told Reuters that Ahold USA does not plan to accept any wallets because they see it as an investment cost without immediate returns.
The cost to merchants of accepting a mobile wallet is highly variable depending on what technology they already have in place.
Retailers face an October deadline to upgrade their credit card terminals to accept cards with microchips, and the new terminals will typically also support contactless payments such as Apple Pay.
But mobile payments also require back-end systems that can be costly, especially for a large retail chain accepting multiple types of mobile payment systems, said Rick Dakin, chief executive of Coalfire, a security systems and IT infrastructure firm.
Apple declined to comment on the cost to retailers of accepting Apple Pay but referred Reuters to Ian Drysdale, Executive Vice-President at payment processor Elavon, which works with Apple.
Drysdale downplayed the cost issue.
"As long as the retailer is upgrading to the new payment terminals, which are enabled with contactless payment technology, there is very little additional cost to accept Apple Pay," he said.
Ultimately the success of Apple Pay may rest with iPhone users like Scott Braeckel, an iPhone 6 owner who has used Apple Pay - but only once.
Braeckel said he liked the Apple Pay experience, but he generally pays with a credit card, even at places like McDonald's, which accepts the mobile wallet.
A survey released in March by shopper insight firm InfoScout and PYMNTS.com of more than 1,000 iPhone 6 users found that while 15 percent of them had tried the payment system, only 6 percent said they continued to use it.
"It was an interesting curiosity but hasn't moved into daily use for me because frankly, I don't really shop at places it's taken," Braeckel said. "The places I mostly shop, which are my grocery store and pharmacy, don't accept it."