The new iPhones and Apple Watch sure got most of the buzz after the latest Apple launch event a few weeks ago.
But Apple Pay, which launches this week with the release of iOS 8.1, may end up being the most impactful announcement in the long term.
There has been a fair amount of coverage of Apple Pay in a number of media outlets, including Propelics’ own blog. But most of the coverage has been on the mechanics of the technology and unsurprisingly has been focused on its use in traditional retail environments.
So I thought it might be more interesting to try to figure out what kind of impact Apple Pay could have in the travel industry.
But before we dive into use cases and projected impact, let’s recap what Apple Pay is first.
The last, best hope for mobile wallets
Apple Pay may be our last, best hope for delivering a mobile wallet solution.
Many others have tried to crack this particular nut and failed.
Some like Google was because there were very few devices in the wild that could support NFC at the time as well as the inability to get a meeting of the minds with the card issuers over control over the data.
The carriers have tried the same with SoftCard (née ISIS) to little effect because… well, they’re carriers and can’t market their way out of a paper bag and have engendered little trust with consumers.
Apple has approached the problem in a uniquely Apple way – it’s an elegantly simple solution from an end-user perspective and puts consumer concerns about privacy and security at the forefront.
It’s an elegant solution for sure, but it’s more of a sustaining innovation, rather than a disruptive one. It removes some of the friction from the process, but it doesn’t change it in any meaningful way – you still use the same payment processors and banks.
The status quo of the payment system value chain is largely untouched.
Nor is it significantly different than Amazon’s 1-click payment, PayPal or even Apple’s own iTunes purchase methods.
The fact that it can be extended to any app (rather than having to enter – and share – your card info to every app in which you may want to make a purchase) and also for use in physical retail stores is highly valuable.
But sustaining innovations can still have a really big impact. And if successful, the impact on Apple’s bottom line could be pretty huge as the marginal cost of the service is close to zero.
Not that Apple, who is famously profitable already needs any help.
And for participating merchants, not only is the likelihood of conversion higher by simplifying the process, but unlike prior attempts at mobile wallets – by the sheer dominance of the iPhone – there will be in excess of 100 million iPhones in the market that support Apple Pay within 12 months making this a large scale deployment.
That is in stark contrast to the situation that Google had with its wallet, where only a handful of Android devices that supported NFC could take advantage of the service.
Impact on the travel industry
So is the travel industry ready for Apple Pay? And if so, what kind of impact might it have?
A study by Atmosphere Research in early 2014 of more than 5,000 US travelers from shows that one in five smartphone-owning leisure travelers and one in three business travelers who have smartphones have mobile wallets on their phones now.
Twenty percent of both leisure and business travelers who don’t have mobile wallets on their phones are interested in getting one.
Thirty-seven percent of leisure travelers with smartphones and 49% of business travelers who use smartphones believe mobile wallets would be helpful when traveling.
Now personally I think those numbers may be inflated by apps pre-loaded onto devices, but the numbers do show that there is at least a strong interest in mobile wallets by travellers.
And that’s good. Though these numbers don’t appear to reflect the reported usage.
There is great potential for Apple Pay within virtually all sectors of travel that can help reduce the sales cycle, open up higher conversion rates of high profit ancillary products, especially in combination with location-aware and context-aware applications which will make offer presentment more relevant and effective.
Atmosphere Research’s Henry Harteveldt is bullish on the potential of Apple Pay:
“Apple has the brand trust and product features that will help. Apple has designed Apple pay to fulfill the promise of ‘click okay and walk away,’ which will make it a very consumer-friendly tool.
“Just as Starbucks has seen its mobile app help speed up customer check-out at its cafes, Apple Pay could be used by a hotel guest to check out of a hotel, let an airline passenger pay for ancillary purchases such as upgrades or lounge passes at the airport, and pay for ground transportation or activities.”
American Airlines has often been an early adopter of Apple technologies and is often singled out in its keynotes.
So I spoke with Phil Easter, director of mobile apps for the carrier, to get his perspective.
Easter sees many possibilities for Apple Pay.
“A lot of people will see this as cool, but when people start to understand the impact, especially with Apple Watch showing up next year, you will see all kinds of new use cases that consumers will dive into.”
American believes Apple Pay will provide additional opportunities to promote and convert last minute impulse ancillary products, such as seat, upgrades and day passes to lounges.
With beacons and proximity and contextual awareness, smart travel marketers get those offers to the passenger closer to the time of departure and hit them at those moments of need. And Apple Pay can make accepting those offers even more convenient.
Easter adds:
“Anytime there’s an opportunity to reduce barriers to entry or use, we have to embrace it. Consumers’ expectations that we provide better and better experiences only get higher and higher. Steve did that to us.
“He created an environment where elegant apps rule the world. And Apple Pay is another step in that journey.”
The end of the room charge?
Apple Pay should also impact the hotel sector, but not always in the way that hoteliers would like.
Hoteliers look at RevPAR to see how they’re doing at the room level, but it’s spend at gift shops, restaurants, spas and other retail outlets at hotels and resorts are how hoteliers look to increase their share of wallet of the guests’ trip spend and can drive a lot of profitability.
There is no doubt that paired with location awareness – perhaps via iBeacons – there will be offers to present offers to hotel guests and have them pay via Apple Pay at higher conversion rates than seen previously.
Often, people charge to the room based on convenience.
Perhaps it’s that they don’t have their credit card with them at the time, if they’re at the pool for example. But today, nobody goes anywhere without their mobile phone.
And one-touch payments is likely to be seen as infinitely easier than a written signature. With (now) Priceline-owned OpenTable integrating with Apple Pay, we may see initial adoption higher at hotel restaurants that accept OpenTable.
Of course this would necessitate a change in POS infrastructure — NFC card readers and perhaps the introduction of portable NFC-capable POS terminals.
Incidentally, portable POS systems are commonplace in Europe and Asia yet, nowhere in the US. It’s a thousand times more convenient for the consumer, so why hasn’t this happened in the US? But I digress.
Valyn Perini, VP of strategic relationships at Nor1 (and fellow Tnooz Node) notes the potential of Apple Pay to reduce the number of purchases that get charged to the room.
“Hoteliers are really interested in better understanding spend, which means they need to see the spend.
“But if the on-site spend goes through Apple Pay straight to the credit card instead of via a room charge to the folio, the hotels won’t like this because it reduces their visibility to guest spend.”
So if you’re a hotelier, you’ve got two questions to ask your POS provider:
What if anything are you doing to be able to support Apple Pay (to satisfy guest demand)?
What can you do to help me reclaim the visibility to my guest spend that comes through Apple Pay?
Today the answer to question #2 is probably going to be “not a lot” because Apple hasn’t yet provided any mechanism to get at the data.
But Apple’s typical strategy is to deploy the technology initially in a limited way and then in the following year, open it up for partners to leverage in a responsible and secure way.
We’ve seen that pattern most recently with Touch ID and it wouldn’t surprise me to see the same thing happen with Apple Pay.
Perhaps we’ll see a mechanism that enables you to match Apple Pay spend with a guest by triangulating with their loyalty card stored in Passbook and geo-location.
That would not only provide visibility of on-property spend to the specific hotel the guest is staying at, but also back to the marketing teams at the brand level which could then drive better offer targeting into the future.
But let’s not get ahead of ourselves
With all the excitement about the launch of Apple Pay, we need to temper expectations. It appeared to work seamlessly in the demo, but we have to see how well it works in the wild.
Easter is cautiously optimistic for Apple Pay’s success, but recognizes that the tech industry’s mobile wallet failures of the past don’t provide much margin of error for Apple with consumers.
“I’m interested to see what happens in the next 30 days after Apple Pay launches. Previous attempts to launch mobile wallets haven’t really taken off.
“What we have learned is that you have to have all the players to agree to put this solution together, any of whom have competing interests involved. It’s not a technology problem – that’s been there for over 10 years.
“But it’s important it hits right for consumers. If Apple can’t pull it off, I don’t know if it will happen.”
And while travelers might be happy to buy their coffee with Apple Pay, will they be willing to use it on bigger ticket items out of the gate?
Harteveldt says:
“As exciting as Apple Pay is, I think we must be pragmatic about its adoption. This won’t change the world overnight. It’ll take a few years for Apple Pay to reach critical mass in travel.
“I expect we’ll see consumers use Apple Pay for less expensive, less important purchases before we see a meaningful number start using this for travel.”
One other potential obstacle for adoption pertains specifically to the corporate travel world.
“[Apple Pay] doesn’t currently work with corporate credit cards, so a sizeable portion of the customer base will not be enabled,” according to Flo Lugli, principal at Navesink Advisory Group.
One might expect that this gets resolved as Apple Pay matures and they extend the platform, especially as the big three payment networks (Visa, Mastercard and American Express) and many of the largest issuing banks are supporting consumer cards via Apple Pay.
Harteveldt adds:
“However, travel sellers need to be prepared to accommodate their Apple Pay customers.
“The early adopters will no doubt represent a valuable – and vocal – subset who will share their experiences via social media.”
Steven Joyce, CEO of Rezgo (and another fellow Tnooz Node), notes that adoption in the tours and activities sector will be severely challenged as “existing support for NFC terminals by small businesses, especially those in tours and activities is limited.
“Most have only just started supporting swipe technologies. If Apple Pay allows payment from one iPhone to another, that might make a difference, but requiring the purchase or installation of new hardware will be problematic.”
Mobile web support could open even nore possibilities
As of today, Apple Pay only supports app-based purchases, though the next logical extension would be a plug-in to support mobile web via the Safari browser.
Much of travel bookings, particularly through OTAs comes through search. And many of those searches come from people who arrive at many booking sites as a guest.
And many of those prospective bookers abandon their search before booking. Sometimes it’s because they are looking for a better deal elsewhere before they commit.
But sometimes it’s because when they start to go down the booking path, there are forms and fields to fill in, including their credit card information.
It’s hard enough to do that on a desktop, but can be really painful on a smartphone.
So if there was the ability to invoke Apple Pay to reduce the friction of the transaction and increase conversion, which beyond having the benefit of increasing revenue, it would also improve the ROI on search engine marketing… that is until Google changes their algorithm.
What’s your take on Apple Pay? Are you looking forward to using it yourself? Are you planning to integrate it into your company’s mobile commerce strategy?
Please share your thoughts in the comments below.