Apple Pay's growth curve: The ramp will take time

Apple Pay could realistically be a huge business for Apple, but adoption will depend on sales of iPhone 6 and 6 Plus, consumer willingness to change and retailer IT infrastructure.

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With the iPhone 6 and iPhone 6 Plus reaching tech buyers Friday, what could be one of Apple's most lucrative services — Apple Pay — makes a debut.

Related:  Apple Pay: Really a PayPal killer? If Apple can't stream a live event, is there really an enterprise story?  |  iPhone 6, Apple Watch fallout: Winners, losers  |  Apple's iWatch meets payments: Disney's MagicBand concept at scale  | CNET: iPhone 6 Plus review, iPhone 6 Review

But don't expect Apple Pay to change the mobile payment world right away. Why? Five primary reasons:

  • It'll take time for the latest iPhones to reach the installed base. Analysts have been saying that the iPhone 6 upgrade cycle will be Apple's largest given the number of iPhone 4 devices in the market.

  • Even if Apple's iPhone 6 and 6 Plus devices swarm the market, consumers will have to adopt Apple Pay and change their behavior. It will take years for shoppers to stop whipping out cards and start using smartphones to pay. Some percentage of iPhone 6 customers — say 25 percent — will adopt Apple Pay out of the gate.

  • The infrastructure isn't ready. Retailers have to adopt new point-of-sale systems that are more secure by Oct. 15, 2015. Some retailers such as Home Depot and Target will upgrade quickly. Other retailers may drag it out. It remains to be seen if these new checkout systems can handle Apple Pay. The consensus view is that the systems will.

  • Security and privacy will be a concern. PayPal has already tried to play the fear, uncertainty and doubt game about Apple Pay with ads. Apple launched a privacy site to outline its stance. Any company playing in the mobile wallet game will have to outline security precautions just to entice consumers to change behavior.

  • There is time for Google to enter the mix. Give Apple credit. The company lined up all the key banking players and card issuers, timed Apple Pay's launch well and may have even provided a great use case for its Apple Watch. But what Apple really did was shine the spotlight on mobile payments and leave about six months to a year for Google to enter the fray.
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Mastercard, a key Apple partner that worked on Apple Pay's tokenization and platform for more than two years, had its investor meeting this week and the conversation with analysts was dominated by Apple Pay.

Mastercard, Visa and American Express all see Apple Pay as a way to increase the volume of transactions. Remember that the enemy for the entire mobile payment ecosystem is cash transactions.

Chris McWilton, president of Mastercard North America, noted that there are too many wallets and some will fail. McWilton said Apple Pay should do well as will his company's MasterPass. The general theme is that tokenization — an encrypted number that replaces card digits — is the best way to secure retail conversations. McWilton said:

The answer there to secure that channel and growing channel is tokenization. Simply put, tokenization is a mechanism to replace a 16-digit card credential with a one-time use encrypted number and our platform for tokenization is called MDES, MasterCard Digital Enablement System.

It is the enabler of what you saw last week in Cupertino, Apple Pay. So it basically provides tokens that will go on the iPhone 6, the iPhone 6 Plus, and the Apple Watch to make payments commercially on time, either NFC or in app or online.

We have been working with Apple for 2 1/2 years on standing up that engine...

The MDES is not exclusive to Apple. We will use MDES for other wallet providers, other payment applications. Android, Google, whatever the case might be we are prepared to help stand them up as well. Anything we can do to secure e-commerce payments is going to grow that business and grow our share of it, so we are very happy to be there with that.

Our own wallet platform is MasterPass. I joke around the office that I think there are days I think we are in walletpalooza. Everybody has got wallets and not all of them are going to survive.

Rest assured that the Android ecosystem will also have something similar to Apple Pay. What's unclear is whether Google can line up the comprehensive list of partners that Apple did.

Those aforementioned mobile parts highlight how Apple Pay could be a huge business and a great customer loyalty tool (if apps and photos are sticky wallets are even more so). But Apple Pay will take time to percolate. There's a scenario where Apple Pay will take enough time that people will start questioning the success in six months to a year. The real time frame to measure Apple Pay success is likely to be over three to five years.

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