Since the iPhone debut in 2007 the Apple ecosystem was constantly growing. In 2014 Apple manufactured Mac computers, iPods, iPhones, iPads and started shipping Apple Watches. All the devices were connected via iCloud and actively used daily wherever users would go. Apple was already a big payment “processor” managing transactions for App Store, iTunes Store that served as digital marketplaces for apps and music. The whole ecosystem had a possibility to become a big supermarket but lacked a standardized purchasing solution. Recognizing the need for a seamless payment method, Apple Pay was introduced to enable users to make easy, secure and private payments with a simple tap. However, its origins trace back to earlier innovations in mobile payments.
The mobile payments started to emerge in the industry even before iPhone. The Mobile FeliCa payment solution was introduced by NTT DoCoMo and Sony in Japan in 2004. In 2012, Google Nexus 4 mobile phone was equipped with NFC (Near Field Communication) chip enabling payment transactions. In 2012, Apple acquired AuthenTec, a company focused on fingerprint-reading and identification management software which resulted in the launch of Touch ID - a biometric reader in 2013. All those developments made possible to design Apple Pay.
Apple partnered with American Express, Mastercard and Visa creating a joint project in January 2013. Their solution was a system where single-use digital tokens would replace the transfer of credit card personal information. Later Apple approached several big banks in mid-2013. The joint effort resulted in solidifying two innovations: much secure payment transactions (dynamic digital tokens were exchanged instead of credit card details) and the payment simplicity with the help of Touch ID.
Apple Pay was officially announced in September 2014, offering a secure, private, and easy way to make payments in stores, apps, and online. It utilized NFC technology, allowing users to make contactless payments. To use Apple Pay, one needed to add debit and/or credit cards to the Apple Passbook/Wallet. If a phone were stolen, one could use Find My iPhone to suspend all payments from the lost device.
Key features of Apple Pay
Security and Privacy: devices like iPhones feature NFC and Secure Element chips. Making use of Touch ID - fingerprint reader, users can make mobile payments by tapping their device wit the NFC reader and confirming the transaction with their fingerprint. Apple Pay also creates a device-only account number that works with Secure Element to generate one-time-use security codes with every transaction ensuring that credit card details are never stored on the device or Apple servers. This also helps to keep customer payment information private from retailers and adds extra protection against data breaches.
Ease of Use: Users can add their credit or debit cards to the Wallet app and make payments with a simple tap.
Integration with Apple Devices: Apple Pay works seamlessly across all Apple devices, including iPhone, Apple Watch, iPad, and Mac computers. This integration allows users to make payments from any device, whether they’re shopping in-store or online.
Expanding Services: Over the years, Apple Pay has expanded to include services like Apple Pay Cash, which allows users to send and receive money through iMessage, and Apple Card, a credit card designed to work with Apple Pay.
Although Apple Pay users receive immediate notification after each transaction, the Apple Pay system is not an instant payment instrument, because the fund transfer between counterparties is not immediate and the settlement time depends on the payment method chosen by a customer.
The press reviews around 2014 were a bit reserved. NYT noted “Also, cash is still hugely popular. It may not be easy for Apple to persuade millions of people to switch from a familiar payment system to a novel one”. WSJ concluded that Apple Pay was easy to use, but still hard to find where it was accepted. Fortune commented that “the shift to mobile payments isn’t something that’s going to happen overnight, of course”. Business Insider decided that if “Apple Pay is the future, the future won't be here any time soon”. VOX summarized that “Apple Pay worked smoothly and quickly in all but a very few instances. But the number of physical and online stores that accept it at launch is still very small.” Associated Press observed that the service made it easy to shop online - perhaps too easy. The Verge focused on the innovation side writing “Apple Pay was this week's most revolutionary product”. Ars Technica showed more optimism thinking that Apple Pay could succeed where others had underwhelming results. In Europe FT acknowledged that “Apple Pay feels like a big step forward for mobile payments, but perhaps there is a reason that plastic cards have stubbornly resisted technological disruption for so long. They just work”.
Already the press reviews indicated that the Apple Pay service was not to be an immediate success. Part of the problem were retailers - only about 10% of them used NFC readers, and some major retailers like Best Buy and Walmart were not planning to adopt the technology soon. Apple Pay’s usage remained low, with less than 1% of payment card transactions, indicating it had not yet achieved significant growth even in 2016. The bright spot appeared to be smartwatch users - 80% of them tried Apple Pay, and 96% wanted to use it at more locations, with 62% saying they would visit supporting retailers more often. A decade after the Apple Pay debut the adoption rates are quite solid. Apple Pay has 507 million users across 76 countries and US alone accounts for 45.4 million users. Over 85% of American retailers accept Apple Pay, and it is used extensively for in-store and online payments. Apple Pay holds a 43.9% market share in the United States and accounts for 5% of worldwide card transactions, expected to reach 10% by 2025. In 2022, Apple Pay generated $1.9 billion in revenues.
Apple Pay continues to evolve, offering a secure and convenient payment solution for millions of users worldwide. By simplifying transactions and enhancing security, Apple Pay has become an essential tool for modern consumers, building on the legacy of innovation that Apple is known for.