Will Stores Warm Up to Apple Pay?

As Apple Pushes Its New Mobile-Payment Service, Some Big Retailers Remain Skeptical

Apple Inc. has lined up an impressive list of banks and credit-card issuers to support its new mobile-payment service. Now all it needs is more merchants, and customers.

Apple hopes its service, Apple Pay, will prompt shoppers to ditch their wallet and make purchases with an iPhone. The system relies on a technology known as near-field communication, or NFC, that has had trouble winning acceptance from merchants.

Merchants must install a reader at their checkout line for so-called tap-and-go payments. NFC readers are being used by fewer than 10% of merchants, according to Gartner analyst Mark Hung.

Starting in October, Apple said iPhone owners will be able to use Apple Pay at 220,000 U.S. locations, including McDonald's Corp., Bloomingdale's and Macy's. By comparison, the Electronic Transactions Association said more than nine million U.S. merchants accept credit and debit cards.

"Apple has rallied the issuing bank side, but not the merchant side," said Richard Crone, chief executive of Crone Consulting, a payments advisory firm. "Many merchants who had NFC acceptance have turned it off."

Best Buy Co., for example, installed NFC-enabled scanners in many of its stores but switched them off in 2011 because the cost of supporting the platform was too high, the company spokesman said.

The retailer has no plans to change course following Apple's announcement.

In part, mobile payments have suffered from a classic chicken-and-egg situation. Smaller merchants in particular were reluctant to install the systems -- which can cost $300 to $500 per device -- because few consumers were using them. Moreover, merchant fees for mobile-payment systems can be higher than for plastic cards, particularly for debit cards, Mr. Crone said.

.............

Credit-card networks are pushing retailers to install payment terminals that accept cards embedded with a chip. If they fail to do so, the merchants, instead of the banks, will be liable for any fraud stemming from chip cards starting in October 2015.

In the process of upgrading the terminals, many merchants will also include the contactless readers and thus will simultaneously become NFC-payment ready.

The question remains whether Apple can get retailers to turn on the NFC machines.

.............

Best Buy and Wal-Mart are instead backing a retailer-owned mobile technology group called Merchant Customer Exchange, which also counts Target Corp. among its members.

MCX's payment service requires only a software download and can be used on existing iPhones and Android devices, whereas Apple's is only for the latest generation handset.

The group announced the launch of a mobile wallet application called CurrentC, which it said will run as a pilot in certain cities before being rolled out nationally in 2015.

CurrentC said it will link with customers' checking accounts, retailer gift cards and select merchant-branded debit and credit accounts but doesn't currently sync with traditional credit cards. Unlike Apple Pay, CurrentC doesn't use NFC technology. Instead a retailer scans a digital QR code on its smartphone app.

They are also paying hard cash for the privilege of being involved: 15 cents of a $100 purchase will go to the iPhone maker, according to two people familiar with the terms of the agreement, which are not public. That is an unprecedented deal, giving Apple a share of the payments' economics that rivals such as Google do not get for their services