As well as paying for goods in stores such as McDonald’s, Walgreens and Subway with the new iPhone 6 and 6 Plus and, eventually, iPads, users will be able to make online purchases through apps using the Touch ID fingerprint reader.
Bloomingdale’s, Foot Locker and Office Depot say they will introduce it in their stores by the end of the year, and Apple said last week that 500 more banks had agreed to participate in the scheme in the coming months
With mobile payments volume forecast by researchers at IDC to exceed $1tn by 2017, Apple is hoping that it can succeed where others have failed.
Apple Pay will integrate with ecommerce apps for the iPhone and iPad. Original participants such as Uber, OpenTable and Starbucks have since been joined by Lyft, StubHub and Airbnb.
Yet it remains to be seen whether consumers will see the utility in Apple Pay or trust the iPhone maker with their payment details, especially after a series of high-profile leaks of celebrities’ photos from their iCloud accounts last month.
There are also significant holdouts including retail giants Walmart, 7-Eleven and Best Buy, who have said they would pursue their own alternative mobile payments service.
In the meantime, the company is laying the groundwork for a European launch, after hiring Mary Carol Harris, formerly Visa Europe’s director of mobile, last month.
Tim Cook, Apple’s chief executive, hopes that extra security and privacy capabilities will differentiate Apple Pay from other digital payments services such as Google Wallet, which was launched in 2011 but failed to make a big impact.
But the introduction of Apple Pay comes amid growing competition in the wider mobile payments marketplace. EBay is preparing to spin out its PayPal payments processing division as a standalone group, reporting last week that the volumes of payments it processed increased 29 per cent in a quarter. And cryptocurrency Bitcoin is the focus for many start-up groups exploring payments and money transfer technology.
After installing a software update released on Monday, owners of the new iPhones can pay online, within apps and in person simply by waving their mobile phone over a specially equipped checkout terminal. The service relies on a wireless technology called near-field communication. Credit or debit card information is stored in Apple’s Passbook app, meaning consumers do not have to type in card numbers or shipping addresses.
Unveiling Apple Pay last month alongside the new iPhones and its forthcoming Watch, Mr Cook described payments as a “huge business” noting there are $12bn worth of daily transactions in the US alone, which were restricted to using “antiquated” card swipe systems. The banks, technology companies and retailers that have “dreamt of replacing” the wallet with the smartphone have “all failed”, he declared.
Apple’s partners, however, are also paying hard cash for the privilege of being involved: 15 cents of a $100 purchase will go to Apple, according to two people familiar with the terms of the agreement, which are not public.
Analysts predict the rise of mobile payments will prove to be disruptive for banks, whose ageing and complex IT systems are already straining under demand from online banking apps as customers access their data on the move.
US banks are in a marketing race to persuade users to choose their cards as the default option under Apple Pay, enabling them to collect the most payment fees from retailers, which account for a tiny percentage of the cost of each sale.
Led by its iTunes and App Store chief Eddy Cue, Apple spent more than a year negotiating with banks and credit card companies to launch the service. Contactless payments will also be a feature of Apple’s new Watch, which Mr Cook says will go on sale early next year.
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