Flirting with Apple Customer Ire

Retailers in Delay-Negotiating Mode Risk Losing Valuable Data Access, UMD Smith Experts Say 

COLLEGE PARK, Md. – Oct. 30, 2014 – Mobile commerce and marketing experts in the University of Maryland’s Robert H. Smith School of Business are available to expand on their comments, below, on strategy and implications surrounding Wal-Mart and other retailers not accepting purchases via Apple Pay and other mobile payment apps such as Google Wallet. Both platforms depend on a purchaser's mobile phone wirelessly communicating with point of sale systems via an embedded chip with encrypted payment information called a near field communication (NFC) antenna. 

From Joseph Bailey, (301-405-2174; jbailey@rhsmith.umd.edu) research associate professor of technology, management and policy: 

A negotiating ploy by retailers

“Retailer strategy to turn off NFC or not accept the Apple or Google systems is, in part, a delay and negotiating tactic. Though retailers may be able to avoid the Apple or Google systems by offering their own payment service, like Starbucks’ mobile payment app, they ultimately want to delay before having to cede the network to Apple or Google. They also could get more favorable terms regarding data sharing or transaction fees with a better negotiating position. Sometimes these terms can be very favorable to the retailer if they are exclusive terms, like, hypothetically, offering Apple an exclusive deal for a set period that keeps Google out." 

A Battle for Standards, Users, Data

“One of retailers' most despised partners, until now, has been the credit card companies. However, since the credit card companies have the network effects (large group of users), the retailers have little choice other than to seek the lowest possible transaction fee from the likes of Visa and Mastercard. In some cases, retailers will not accept one of the branded credit cards because they don't like the fees or other terms of service. In other cases, retailers, like gas stations, give a surcharge to customers for using credit cards.  

“Between Apple Pay and Google Wallet as mobile payment systems, there is no dominant player -- yet.  Apple thinks it can be such. Google has been around longer and may leverage its large users of Android. However, the market has not tipped in any one direction." 

Technology question not yet settled

“Even with incredible progress with the technology, uncertainty persists regarding privacy and security. This may mostly be a consumer-acceptance and adoption issue, but it is also a process and legal issue. With much uncertainty as to who is responsible for what, the retailers may be looking to slow down, instead of speeding up, the diffusion and adoption of the mobile payment technology.” 

Credit card companies' interest at play  

“New payment systems for retailers are more disruptive for existing payment systems than they are for retailers. It may be possible that Visa, Mastercard, American Express, Discover and others want the retailers to flex their muscles a bit here. Retailers need the traditional systems so they may be trying to curry favor with the credit card companies.” 

From Bill Rand (301-405-7229; wrand@rhsmith.umd.edu), assistant professor of marketing and computer science and director of Smith’s Center for Complexity in Business: 

Data the key benefit

“The biggest benefit of these new payment systems is the data – not the fees. Mobile payment platforms give retailers unprecedented access to data about their customers, even without loyalty cards. Credit card companies have mined and resold this data and analysis for years, and now their retail counterparts, with these mobile payment systems, can benefit from the same access. This development also could benefit consumers in that retailers and merchants could better serve them with better data. Consumers also can perceive this negatively because their data is broadly and increasingly accessible to organizations.” 

“For merchants, blocking Apple Pay or Google Wallet can be a pitfall because they stand to miss out on a more holistic analysis of consumer data  these platforms can provide, including that from other retailers.” 

How Apple Can Counter 

“This is really a network effects – or user volume -- question. Ultimately, Apple needs to build its mobile payment network as quickly as possible. A potential Apple-Alibaba partnership surrounding Apple Pay (as reported here) is one way the U.S. tech giant could drive more consumers to use Apple Pay and expect to use the platform in a variety of contexts. This would drive demand and drive merchants to accept the system to avoid loss of sale.”  

From P.K. Kannan, (301-405-2188; pkannan@rhsmith.umd.edu), Ralph J. Tyser Professor of Marketing Science and chair of the Department of Marketing: 

CurrentC factor

“The decision by retailers to disable Apple Pay and not accept them at their stores is completely understandable. Once customers start using a device frequently, there is significant inertia in getting them to switch to another payment mode, like CurrentC (the recently hacked mobile payment system under development by a consortium of retailers). There is cognitive, habitual and inertial lock-ins that CurrentC would have to overcome to compete with Apple Pay. Given that their payment system is still a year away, it makes sense for these retailers to make it difficult for Apply Pay to gain acceptance and gain a foothold in the payment market. Because, if Apple Pay gains traction, it will be very difficult for CurrentC to make customers disadopt Apply Pay and switch to CurrentC.” 

Blowback from Loyal Apple Customers

“Apple Pay does not bring in any extra revenue for the retailers – they have no incentive. It is purely a device for customer convenience and Apple and the credit card companies stand to benefit. So, their reaction is expected. However, there is a tremendous loyalty for Apple among customers and the danger for these retailers is if they become target of customers' ire they stand to lose goodwill among customers. This will especially be true if other retailers start accepting Apple Pay. 

“Apple may well team up with a few key retailers to get them to adopt the system with some incentives. But this has to be done sooner than later.”