Introduction:

Apple has recently launched its iPhone 6 with Apple Pay with much enthusiasm and fan fare. Almost every media house on the planet has covered the launch extensively and some of the top industry analysts have hailed the launch as equivalent to the Ford Model-T revolution in Payments. The merchants are largely positive about embracing the Apple Pay except some of the retailers who are rallying behind MCX. Although Apple will stake some claims on the interchange fee for providing the service, it is unlikely that the merchant fees will rise steeply as banks will work out an agreeable fee based on lower fraud risks on Apple Pay compared to the current non-tokenized transactions going through EMV or Magstripe terminals. Overall it is a win-win situation for Apple, banks, terminal vendors, merchants, NFC proponents and most importantly the customers.

What about online payments?

This is where the discussion gets interesting. Apple Pay supports online payments exactly in the same way as it does the card-present payments. The online retail stores are slowly queuing up to accept Apple Payments with apps that are accepting Apple Pay just days after its launch (e.g. Target, Groupon, Apple Store, Uber, OpenTable etc). With the API available for integration with the Apple Pay, the online stores have a choice of including Apple Pay payments along with other conventional payment methods using Visa, MasterCard, Bank issued debit cards and .... PayPal. In all probability, the online store merchants will follow the suit of the retail merchants; it is just a matter of time to integrate the support of Apple Pay into the checkout facility of Internet Payment Gateway providers. There may be resistance from some online merchants (notably eBay for obvious reasons), but here are the reasons (as discussed further down the article) why the online retailers eventually will support Apple Pay.

Some statistical comparisons:

It is true that PayPal operates mostly in the Card not present environment (i.e. online shopping) with the registered customers storing their card details within PayPal guaranteed secured environment that works seamlessly with eBay and other large online merchants. But Apple has already had the upper hand in the consumer product market with the issuance of iPhone as a well established brand, perhaps one of the most popular consumer products launched by Apple or its competitors. In 2013 alone, Apple has sold from over 150 million units (mostly iPhone 5) globally, and with the release of iPhone 6 and 6+, the suppliers are expecting a staggering growth of 20% greater than the sales of iPhone 5. In other words, within the next one year, we are expecting around 180 million iPhone 6 customers (some upgraded from iPhone 5) equipped with Apple Pay facility and iOS 8.1 Operating system ready for Apple Pay usage.

Compare the above with PayPal's statistics - 110 million active PayPal accounts with 2.6 million top customers averaging 98 purchases per year. Does anyone believe that the projected 180 million iPhone 6 customers with Apple Pay ready features within a year will not be using this feature for payments in the existing or newly deployed NFC terminals as well as with the online merchants with Apple Pay supported cards? Can the online merchants ignore the fact that Apple iPhone users are more affluent than that of Android users with 61.5% of household having annual income of US$75,000 or more owns iPhone compared to 36.1% having Android phones? Moreover, it may be possible that the tokenization revolution that Apple has introduced through Apple Pay will soon be emulated in the Android Community within a year or two by the Google camp, even though it benefits Apple with a massive head start.

"Customer behavior is the killer app":

Consider the scenario - an iPhone 6 customer using Apple Pay with cool features like Touch ID and Apple Wallet for retail transactions where Apple Pay is accepted. The customer will certainly feel the "wow" factor for being the proud user of the Apple community encouraged by telcos, banks and merchants. Apple has a notorious reputation of changing the customer behavior as it has done with the launch of iPods and Mac Books which are often taught as case studies in all B-schools. The same customer discovers that he can also use Apple Pay for online stores which is as secured (if not better) than other payments methods including that of PayPal. Why would the customer be using PayPal if they already have iPhone 6 with Apple Pay, which has almost imbibed with the personality of the customer? If the Payments are predicted to be ubiquitous in future, the dilemma of choosing multiple payment methods for online and card present transactions needs to disappear. Apple Pay is the answer to the friction and that is why PayPal should get worried.

The Google camp perhaps is frantically trying to come up with similar solutions in the near future, just like the case of many start-ups emulating the success of Square in the merchant domain. The technology of tokenization and NFC is finally taking shape and it is the hardware companies who are sweeping the so far niche payments processing space. Does it mean that PayPal users will switch their allegiance and adopt Apple Pay (and Google equivalent in future)? After all, as per the comment of a renowned industry expert on banking and payments, "Customer behavior is the killer app".