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Six Clicks: Six systemic factors that may hinder Apple Pay's success

When it comes to the specs, especially in the security architecture, Apple Pay looks good. But Apple isn't the only game in town when it comes to the retail space, and there are a lot of factors that might make this less of a slam-dunk than Apple might like. We look at six of them here.
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1 of 7 CBS Interactive

Fast uptake of Apple Pay

Tim Cook recently reported that Apple Pay had signed up more users in its first three days of operation than all of the other contactless payment providers combined. Clearly Cook and Apple have high hopes for Apple Pay, and equally clearly, a better and more secure payment solution is needed for consumers.

Retailers and the credit card issuers have also come to this conclusion in the wake of some very high profile breaches, and we've seen some adoption (mostly outside the US) of "chip and pin" technology that puts a security chip right on the card. Unfortunately, that approach may already be subject to exploit.

In this context, the Apple Pay system looks very good indeed. Unfortunately, there are at least six systemic factors that will limit Apple Pay's success, at least in the near term.

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2 of 7 Apple

1. Apple will never be able to own a monopoly on contactless payments.

The burgeoning contactless payment systems are far from fully formed. Without a doubt, there will be competing services. Not only do Apple and Google want to get into the game, but many of the largest retailers are claiming the payments space for themselves.

If Apple Pay is to be universally adopted, Apple would have to stray very far from its current comfort zone and license the core technology to competitors. This is unlikely to happen.

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3 of 7 Apple

2. There will need to be some consolidation and standardization at the counter.

Counter space is limited and the space right around the register is perhaps the most valuable. Retailers are unlikely to be willing to give up that precious space to multiple contactless payment systems, and will likely stick with just one solution.

Also, the machines can be costly to buy or rent, and with retailers already unhappy about the tithe they pay to the credit card companies for each charge, they're unlikely to want to purchase multiple, competing contactless payment machines.

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4 of 7 OnePlus

3. Smaller smartphone vendors are likely to get locked out.

If contactless payment becomes a mainstream payment method (and it is undoubtedly safer than handing over a credit card), consumers may choose their smartphone as much for its embedded payment technology as for the quality of the camera or the size of the screen.

But because contactless payments requires a level of both security and service agreements with big finance, it's unlikely the small, boutique phone makers can get in the game. Makers of Cyanogen-based phones, Silent Circle's Blackphone, and even the coulda-shoulda-woulda-been-contender smartphones like BlackBerry and Windows Phone are likely to be locked out of the payments business.

For contactless payment to be successful with consumers, all smartphone owners will expect access to the capability. The more phones that don't work in retail shops, the less likely consumers will think phone first. Anything that limits adoption of contactless payments will by extension limit adoption of Apple Pay as well.

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5 of 7 Apple

4. This might be what drives smartwatches and other wearables.

If secure, contactless payments becomes de-rigueur and users don't have phones that contain the necessary NFC security components, they may find that using smartwatches will serve the same purpose.

One way, for example, that Apple might gain more share of the contactless payment market would be to make the Apple watch somewhat communicative with Android devices, so users of Android phones could still use Apple Pay.

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6 of 7 GraphicStock

5. What about restaurants and tips?

So far, we've seen Apple Pay work with a tap of the the finger, but what about more complex transactions? Obviously, a tip calculator is an easy thing to build in, but how open will restaurants that use servers (humans, not boxes) as payment processors be to adopting this new technology?

Will restaurants be able to charge customers at the table using mobile Apple Pay receivers? It's easy to visualize a waiter or waitress whipping out an iPhone and using it to geek-pay with a customer's iPhone. In fact, it's also easy to picture a server simply tapping an Apple Watch and processing the payment.

In the end, some restaurants will probably adopt the technology enthusiastically and others will be laggards, following the technology adoption curve pretty closely after all.

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7 of 7 Home Depot/ZDNet

6. Can Apple successfully scale the payments business without mishap?

During Apple's recent product announcement shindigs, a lot of huge products were discussed, but at no time did Apple mention the recent security breach that resulted in celebrity photos shared across the Internet. While Apple claimed the fault was not in their systems, the fact remains that the data was retrieved from iCloud.

When it comes to online security, celebrity pictures pale in comparison to the losses experienced by online retailers like Target and Home Depot during recent breaches of their systems. Granted, Apple's design for Apple Pay keeps much of the security locked to the physical device, but can Apple's system truly scale to national consumer level and remain secure, especially since the company is likely to become an even more juicy target for hackers?

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