Apple Pay Has Retail CIOs Rethinking How Customers Pay

Apple Pay Has Retail CIOs Rethinking How Customers Pay

The introduction of Apple Pay has retail CIOs once again rethinking the way customers pay at the cash register.

When Smoothie King decided to change its point of sale system, the company didn't just make alterations to what was currently in more than 600 stores. It scrapped the whole thing.

"As far as our guests are concerned, it's really about what's happening when they visit a story and what's happening on their tablet or their phone," says John Lapeyrouse, Smoothie King CIO. "The opportunity to replace point of sale systems doesn't come along very often."

Smoothie King switched to Revel, an iPad point-of-sale based system. This is more franchisee-friendly, he says, gives the company "flexibility for the future," with "mobile wallet being one of those things that is changing."

The Revel system integrates Apple Pay, but Lapeyrouse says "the reality is, our guests will decide" which payment systems they prefer.

Apple Pay Introducing New Mobile Wallet Marketplace

The introduction of Apple Pay -- and the coming of its rival, CurrentC -- has retail CIOs looking, again, at how customers pay.

Apple pushes Pay as one way to stop security breaches. That's because a retailer doesn't store credit card information. Instead, Apple stores that data, and gives retailers a "token" that stands in for payment.

"The credit card isn't transmitted during the transaction, and the retailer will not have the credit card number in [its] systems," says Jim Maholic, author of Business Cases that Mean Businessand vice president in Hitachi Consulting. That way, even if the retailer is hacked, the customer's information isn't put at risk. "As a CIO, I [would] feel better if I have more customers using Apple Pay, because I haven't exposed their numbers to risk."

[ Analysis: Security, Payments Experts Talk Apple Pay ]

That said, there will be limits to who can use the technology -- namely, that Apple Pay is available only on iPhone 6 and iPhone 6 Plus. This could be a good thing or a bad thing for retailers.

"There's a certain number of affluent customers who use the iPhone 6," says Maholic. If one store offers Apple Pay and the other doesn't, those well-heeled customers are more likely to walk in the Apple Pay door. "Now that I've got that customer, it's harder for somebody to steal that customer."

Jerry Sheldon, analyst at IHL, says the Apple Pay rollout is too fresh to judge yet. "Major retailers are the first adopters, and what will happen is you'll continue to see adoption primarily in the Tier 1 space," he says. Tier 1 refers to retail or hospitality chains with more than $1 billion in annual revenue.

The rollout also presents a "which came first, the chicken or the egg" sort of problem, Sheldon adds. "Retailers need to get a certain level of mindshare of people who want to adopt, but how do you get mindshare on the front end" if Apple Pay isn't in place?

There are two unknowns here, too: How many people will actually use Apple Pay, and who's going to pay for it. Where Maholic sees an advantage to the service being limited to the iPhone 6 and iPhone 6 Plus, Sheldon sees a challenge: "That's small number of retailers and a small number of compatible devices for it to work on."

[ More: 10 Technologies That Could Revolutionize Retail ]

Then there's the matter of who's going to pay for it, Sheldon says -- whether it's retailers, through the "swipe fees" that that credit card companies charge when customers use a point of sale system, or customers, as a result of a trickle-down effect.

"Apple Pay will add cost," Sheldon says. "Look at the technology infrastructure it takes to make it work. That's not free." Plus, Apple will "get a piece of the pie" for each Apple Pay transaction, though Sheldon says that's not a criticism of the program, as it's in line with the swipe fees.

But Apple Pay isn't the only kid on the block. Rite Aid and CVS have disabled Apple Pay (as well as Google Wallet). Both stores are part of the Merchant Consumer Exchange, which also includes retailers such as Wal-Mart and the Gap, and which expects its CurrentC mobile wallet system to be live next year. That system will use QR codes instead of the near-field communications (NFC) technology of Apple Pay and Google Wallet, and analysts say CurrentC is the industry's way of pushing back against credit card swipe fees.

Does Apple Pay Fill a True Need?

With consumers shaky about the safety of their financial information after a cascade of retail hacks, Sheldon questions whether tokenization will be enough to make people go toward a mobile wallet. Nothing's stuck so far.

Plus, the retail transaction is already pretty simple. "Will Apple be successful where other companies have had a much harder time overcoming 40 years of simplicity?" Sheldon asks. "Using a credit card is super easy and super quick."

That brings us back to Smoothie King. What prompted the chain to change its point of sales systems was better meeting the needs of franchisees: Allowing them to get new stores up and running quickly and operating more than one franchise easily. At the front of the store, though, it's still up to what customers want and what makes their experience better.

"For the last decade, everybody's been trying to get our guests to buy into something to establish a frontrunner," Lapeyrouse says. "Nothing has really resonated with our gusts to any extent that really requires us to do anything. It's all about flexibility. Picking a winner in that race at this point is probably a bad idea."

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