Apple Pay Launches, But A Few Issues Still Remain

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Apple Inc. (NASDAQ:AAPL) is all set to launch its Apple Pay service on Monday, a potential new revenue source for the smartphone maker. However, the initial roll-out may not be as smooth as the company was hoping.

Many big retailers still not part of the network

Apple’s new payment service will allow shoppers to buy items from over 220,000 stores or inside apps with an iPhone and thumbprint.  The companies that have validated the Apple Pay service include McDonald’s, Whole Foods and Walgreen.

However, there are many retailers such as Wal-Mart Stores who have not yet added Apple Pay to their payment systems. As of now, only a few companies have Apple payment service compatible machines that can read the near-field communication radio signal that allows Apple Pay to work, says a report from the Wall Street Journal. Moreover, this service is only enabled in the iPhone 6 and iPhone 6 Plus phones.

To set up Apple Pay, the form struck a deal with the six biggest card issuers, accounting for approximately 83% of credit card transactions. The company has entered into a deal with credit card networks such as Visa Inc, MasterCard and American Express.

Store-branded cards an issue for Apple Pay

Apple Pay service has become a pioneer in bringing consumers a safer payment technology compared to cash, checks and credit cards. However, the service is not compatible with corporate credit cards, prepaid cards or proprietary retail credit cards, such as Macy’s or Bloomingdales cards. The WSJ notes this means Apple Pay users may miss out on the discounts related to the store cards.

Jim Sluzewski, Macy’s spokesman, told the WSJ that he expects Macy’s card to be added to the system eventually. Sluzewski said that around half of the Macy’s sales are drawn from the proprietary card, which is also linked to its loyalty program.  Richard Crone, founder of Crone Consulting, a payments advisory firm, said that store-branded cards are the “big gaping hole in Apple Pay.” Crone estimated that merchants earn at least 4% on each transaction with their proprietary cards.

The iPhone maker is expected to rectify this issue soon. Furthermore, quite a few merchants are planning to install NFC terminals that can accept the cards embedded with a chip to prevent frauds in the near future. Eddy Cue, Apple Inc.’s senior vice president in charge of Internet software and services, said, “We’re trying to do something that I think is a game changer and it requires a lot of people to play together.”

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