Insight Report: The Future of Apple Pay

Apple Pay is a major milestone in the evolution of mobile payments, partly as it bears what Forbes lists as the world’s most valuable brand. Apple Pay is seen by many as an inflection point, and its development over the next three to five years has the potential to shape the payments industry for decades to come. According to Apple CEO Tim Cook, Apple only ventures into areas where it can control the primary technology, which perhaps hints at Apple’s plans in the payment industry.

Apple’s current business model follows a cooperative approach, with almost all major card networks, issuers and acquirers supporting the launch of Apple Pay. EMV migration in the US plays a pivotal role in Apple Pay’s adoption. Merchants are in the process of upgrading POS terminals to EMV, which in most cases will also comprise NFC hardware; these terminals only require a simple software upgrade to be activated. POS vendors and acquirers are expected to offer bundled deals for merchants to simultaneously upgrade their terminals to EMV and NFC, resulting in an accelerated expansion of NFC acceptance.

However, Apple could face a challenge in terms of allocation of merchant service charges with other payment participants, especially as regulators worldwide cap interchange fees. GlobalData’s primary research has identified different points of view regarding the expansion of Apple Pay beyond the US. Some industry experts argue that low interchange fees outside the US, especially in Europe, will discourage Apple from entering these markets, while others stress that Apple is not expecting substantial profits from Apple Pay; the solution is mainly intended to decrease the commoditization of Apple’s products.


• This report covers the competitive landscape for Apple Pay.

• It provides a comparative analysis of hardware-based secure element and cloud-based host card emulation technology.

• It discusses the impact of Apple Pay on key card schemes, issuers, POS vendors, merchant acquirers, mobile network operators and smartphone manufacturers.

• It analyzes the impact of EMV migration in the US.

Key Highlights

• Apple Pay has attracted the interest of the payments industry and the public in mobile payments and NFC technology. Although not a genuinely new technology, Apple Pay has been successful in combining existing technology such as Secure Element (SE), tokens and biometric authentication to develop a new payment solution. From a marketing and distribution perspective, Apple Pay benefits greatly from Apple’s brand and technology platform.

• Card transactions processed through Apple Pay are expected to be less prone to fraudulent activity than mag-stripe and EMV cards, as Apple Pay combines tokenization, chip, dynamic authorization codes, and biometric authentication. Banks in the US have rallied to support Apple Pay, partly because of its security features. However, whether Apple Pay can significantly reduce fraud levels in card transactions outside the US remains uncertain, due largely to the limited reach of iOS.

• The mobile payment ecosystem remains highly fragmented, with various new entrants making inroads into the market, but only a few operators are a position to compete internationally. The introduction of Apple Pay is expected to lead NFC-based contactless payments to gradually polarize into iOS and Android-based solutions, with a limited number of service providers dominating the market.

• While various sources suggest that Apple Pay is preparing for an international service rollout in 2015, the mobile payments environment outside North America, and in particularly in Europe, differs considerably from that in the US, in particular in terms of interchange and NFC acceptance. Key challenges for Apple Pay in Europe include the EU’s mounting pressure on interchange fees, and differences in fraud dynamics in the US and Europe.

• Field trials indicate that making payments through Apple Pay adds value to the consumer in the form of convenience. However, mobile payments will need to overcome consumer habits of using plastic cards and cash. Encouraging consumers to change old habits requires time and extensive education, irrespective of the benefits the new technology offers. Apple may need to increase the incentives for Apple Pay adoption beyond the convenience offered.

Reasons to buy

• Gain understanding of innovation and the changing landscape in the global payments market. Is Apple Pay likely to become a mainstream payment solution in North America?

• Understand how Apple Pay will affect consumer payments in Europe and the rest of the world.

• Gain insights into competitive threats and opportunities from emerging, new and potentially significant operators in the global payments market.

• Gain an insight into the winners and losers in the new environment.

• Understand how Apple Pay will affect payment technology requirements, industry standards, security and the overall payment ecosystem.

Companies mentioned





American Express






Table of Contents

1 Executive Summary

2 Demystifying Apple Pay

2.1 Driving Factors and Challenges

2.2 Is Apple Pay an Innovation or Permeation?

3 Impact on Payment Security

3.1 The State of Card Fraud in the US

3.2 Apple Pay’s Impact on Card Security

4 The Secure Element vs Host Card Emulation Conundrum

5 Competitive Landscape in the US and Beyond

5.1 The US

5.2 Penetration and Competition outside the US

5.2.1 Potential markets for Apple Pay

5.2.2 Competition to Apple Pay outside the US

6 Are Consumers and Merchants Ready to Accept Apple Pay?

7 Apple Pay – Impact on Key Market Participants

7.1 International Card Networks

7.2 Card Issuers

7.3 POS and Technology Vendors

7.4 Main Competitors in Mobile Payments

7.4.1 Google wallet

7.4.2 Softcard

7.4.3 CurrentC

7.5 Smartphone Manufacturers

7.6 Merchant Acquirers

7.7 Mobile Network Operators

8 Is Apple Pay the Inflection Point for Mobile Payments?

9 Appendix

9.1 Methodology

9.2 Contact GlobalData

9.3 About GlobalData

9.4 GlobalData’s Services

9.5 Disclaimer

List of Tables

Table 1: Levels of Card Security

Table 2: Apple Pay vs Current and Potential Competitors in the US

Table 3: Zapp in the UK, December 2014

Table 4: Potential Competitors Outside the US

Table 5: Key Stores and Apps Accepting Apple Pay, November 2014

Table 6: Apple Pay – Most Used Merchant Locations in November 2014

Table 7: Digital Enablement Service Fees

List of Figures

Figure 1: Apple Pay – Drivers and Challenges

Figure 2: Card Fraud in the US (US$ Billion), 2014E

Figure 3: Card Fraud – the US vs Europe, 2010–2014E

Figure 4: Secure Element vs Host Card Emulation

Figure 5: NFC-Enabled POS Terminals, 2014E

Figure 6: EMV Migration Timeline in the US

Figure 7: MSC Revenue Share of a Typical US$100 Credit Card Transaction through Apple Pay

Figure 8: Non-Card E-Commerce and Mobile Payments (US$ Billion), 2010–2014


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