Analysts thought they had a pretty good idea about what the mobile payments industry would look like over the next few years. And then Apple came along.
Tim Cook stepped on stage yesterday in Cupertino, California, and with the wave of an oversized iPhone, the Apple CEO established a mobile-payments mechanism that average people may actually use. Apple fans are buzzing. Retailers, banks and credit card companies are taking it very seriously.
The timing of Apple Pay is impeccable. The U.S. is undergoing a shift to a different credit card technology that's common in the rest of the developed world. Americans will be issued new "chip cards" that are designed to reduce fraud. Stores will be asked to upgrade their payment terminals by October 2015 or face higher transaction fees. The chips are different from the tap-to-pay components found in the iPhone and other smartphones, but if retailers are buying new point-of-sale equipment anyway, they might as well get a setup that supports mobile payments. Or so the thinking goes.
The switch had already been factored into analyst projections for mobile payments growth. But analysts are less confident to say what kind of impact Apple will have on it. This is what the U.S. market looked like, dating back to 2012 and forecasting out to 2018, according to research firm EMarketer.
Crazy, right? Between July 2013 and a revised projection from this month, EMarketer became more bullish about the medium-term prospects of mobile payments in the U.S. You can see in the next chart that this year is looking brighter — by about $905 million — then there's a slight bearishness from the earlier forecast in 2015, and finally, an acceleration from there. The researcher was hesitant to factor Apple much into that forecast, which was released before yesterday's event, but the pre-event reports were hard to ignore.
"An Apple-branded mobile payments solution could be a catalyst for mobile payment adoption among merchants and consumers in the U.S.," Bryan Yeager, an analyst at EMarketer, wrote in an e-mail on Sept. 8. "But since there have been so many rumors about an Apple mobile wallet over the past few years that haven’t come to fruition, it’s difficult to factor into the forecast. If and when it comes to reality, we’ll be able to assess its potential."
The other question is what Apple's impact on the global payments market will be. iPhone 6 users will be able to turn on Apple Pay next month in the U.S., according to Eddy Cue, the company's senior vice president of Internet software and services. "We're working hard to bring Apple Pay to even more countries," Cue promised on stage, without saying where or when.
Globally, the hype is more muted. Researcher Gartner projects $325 billion in mobile payments worldwide this year, but most of it is expected to be conducted through older technologies such as text messaging. One example of that is Kenya's M-pesa, which is practically ubiquitous even in a land of feature phones. Sandy Shen, a Gartner analyst in Shanghai, expresses some skepticism about Apple Pay, and points to Google Wallet and other payment initiatives falling flat. Gartner says it's sticking with its forecast from May 2013, which anticipates that tap-to-pay technology like Apple Pay will make up a small fraction of all mobile payments.
"Cash and cards are convenient and accepted in all locations, so mobile phone payment needs a better reason to persuade people to make the switch," Shen wrote in an e-mail. "A smooth user experience is not a strong enough reason for the switch."