The Apple Pay Innovation Retailers Have Been Waiting For

On June 13, at Apple's Worldwide Developer Conference (WWDC) 2016, Apple announced that it is bringing the Apple Pay checkout option to websites, giving a second chance to retailers to boost their online sales. Apple Pay coming to the mobile Web, not just on apps, is a big deal for mobile commerce. Mobile commerce has had anemic conversion rates and this could finally bolster conversion rates for mobile websites.

But let’s rewind the story a bit. What is the big deal with bringing another checkout option to e-commerce at all?

E-commerce pushes brick-and-mortar out of business

First, e-commerce is a big deal in itself. Online shopping became such a powerful trend that a wide range of retailers across segments are closing their stores in 2016 and beyond at an outstanding pace. The brick-and-mortar stores are not able to maintain themselves anymore in the hostile market conditions created by e-commerce giants like Amazon and retailers are forced to adapt in order to survive.

Sears Chairman Eddie Lampert commented on the transformation of the environment in the Chairman’s Letter to shareholders, associates and members released in February, saying, "Walmart, Nordstrom, Macy’s, Staples, Whole Foods and many others have felt the impact of disruptive changes from online competition and new business models."

Survival in retail in 2016 means a heavy-duty focus on online experience. And while a part of retailers is being pushed out of business completely (RadioShack, Wet Seal, Sports Authority and American Apparel), others are refocusing their efforts to remain relevant and possibly keep their last pair of shoes, which e-commerce giants keep trying to steal.

However, even with e-commerce, it’s not all that simple. There is a channel particularly important to embrace – mobile. In lieu with Lampert, nearly half (47%) of over 160 payments and financial innovation professionals recently surveyed by CAN Capital agreed that mobile payments are changing retail consumer spending with an increase in e-commerce coming next (35%) and then personalized marketing and advertisements (18%). In fact, global mobile payment transaction volume in 2015 was 450 billion US dollars and is expected to reach $620 billion in 2016 and surpass 1 trillion US dollars in 2019.

However, mobile is not everything for retailers actually. Regardless of skyrocketing m-commerce performance, desktops and laptops are still dominating as the devices used to research and complete online purchases (95% use for research and 95% complete the purchase on desktops and laptops). Moreover, the desktop shopping satisfaction rate is the highest among these channels – 85%. The most recent study by UPS suggests that desktop still remains a major ‘tool’ fueling online shopping.

Growing array of checkout options

Understanding the inevitable wave of disruption coming with the growth of e-commerce, the payment industry offers more and more services for retailers to boost their performance and gain merchant networks for themselves.

PayPal, gift cards, prepaid cards, Google Checkout and a variety of other options led to the expansion of the share of online purchases in total sales volume and facilitated new players to enter the space as companies saw the increasing usage of different options.

Traditionally, credit and debit cards were the two primary ways to pay for the purchase online. However, with alternative payment options emerging in the market, e-commerce and retailers start expanding the list of payment options to follow customer preferences. Paying by credit or debit card is the most straightforward for customers and the most intimidating, as they have to provide sensitive information. Retail and e-commerce businesses, however, have more options to accept payments: Bitcoin, Dwolla, Amazon Payments, gift cards, reloadable prepaid cards, PayPal, Google checkout, Google Wallet, e-checks, etc.

And although there are certain drawbacks of the trend of increasing pressure in online checkout options, it is still considered to be a major force in customer retention, surged sales and online shopping experience enhancement.

Up to now, Apple Pay was among the payment options providers limiting itself to the option to pay within iPhone apps and just by loading a card information to the phone to use at contactless payment terminals with participating merchants.

However, this Monday, the company made a major step forward towards its own prosperity in the payments industry and gave a powerful tool to retailers to improve their e-commerce business.

Apple Pay for websites steps into the game

There are at least two important facts in support of importance of bringing touch-enabled Apple Pay checkout option to the Web.

First, for e-commerce businesses, touch commerce is a goldmine as touch payments are leveraging impulsive purchasing behavior. The smaller the gap between a consumer’s desire to buy something and his ability to check it out right away, the higher the chances the purchase will be completed. In fact, the touch-based checkout option was estimated to bring down the sales cycle from 103 seconds to 17 seconds.

Simplified and frictionless checkout is the most important factor that can have a catalytic effect on sales. And it’s especially important since estimations published in January by IBM, Forrester and others suggest that the average e-commerce shopping cart abandonment rate is ~69%.

And second, as reported by Recode, Retailers had 20% more visits to their mobile websites than their mobile apps during last year’s holiday shopping season.

That is why the move by Apple to bring touch-powered (although a little differently than in apps) Apple Pay Checkout to the Web is a big event for everyone.

Just like with any other payment option for online shopping, Apple Pay initially stepped into the game with intent and pitch to boost conversions for retailers. Apple Pay for Web announced on Monday has the same idea behind it as Apple plans to leverage the fact that the total mobile data traffic is expected to rise at a CAGR of around 45% by 2021 with 90% of mobile data traffic coming from smartphones.

However, with the new Web-based Apple Pay option, the touch function will be working in a slightly different way. When shopping on websites and choosing to pay with Apple Pay for a Web purchase, users will receive a notification on their iPhone to confirm the transaction. The fingerprint on the phone then will authenticate the transaction on the computer. And that’s where the Apple closed-loop culture shows up again: in order to experience the luxury of Apple Pay option while shopping online, you need to have both a Mac laptop and an iPhone. Moreover, not only do you need to own two pricey Apple devices, you also need to use a particular browser – Safari.

Eventually, Apple Pay for Web purchases will be limited to the Apple fan club, but it is not such a big drawback anyway given the scale of the iPhone user base and the strength of the brand in North America and beyond.

In addition to Apple Pay for the Web affecting the retail industry, it is also a significant factor to consider for classic rivals like PayPal, MasterPass, Google Checkout and other options. PayPal is a heavyweight competitor, which will most likely be affected by Apple Pay coming to its desktop playground.

At the end of 2015, PayPal announced that its checkout solution One Touch reached 10 million opt-ins, which makes it a significant competition to fight for Apple Pay. MasterPass has its own island of online merchants accepting the payment option, just like other checkout solutions. There are more than 500 stores accepting MasterPass in their US online properties. Launched in 2013, MasterPass is available in 24 countries and is accepted at 250,000 merchants globally, according to MasterCard.

Anyway, there are battles to fight for Apple Pay with its foray into the Web, and Android Pay will be another pickle since Google recently announced that it will bring its payment option to websites as well through new web API.