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Apple Pay’s Fatal Weakness

The latest Apple Pay hype story from the Apple-zombie fan press inadvertently showcases what could be the vaunted payment application’s fatal weakness. Banks and other financial institutions are embracing the solution while retailers are shunning it.

Several websites, including 9 to 5 Mac, were very excited because another 50 banks and credit unions have signed on to Apple Pay. That means there are lots more bank accounts and credit card balances you can now access with Apple Pay. The big problem is there are still not that many retailers where you can use Apple Pay.

Big Retail Is Still Saying No to Apple Pay

A glance at Apple Pay’s website on January 24, 2016, revealed that not a single major new U.S. retailer was accepting the application. Not one of the retail giants that have been refusing to implement Apple Pay seems to have changed their minds about it. Indeed, the list of retailers saying no to Apple Pay does not seem to have changed much since I examined it in May 2015.

Those declining Apple Pay still include:

  • America’s largest retailer, Walmart Stores Inc. (NYSE: WMT), which also owns Sam’s Club.
Grand opening at a Kroger Marketplace in Richmond Virginia Apple Pay is not welcome here.
Grand opening at a Kroger Marketplace in Richmond Virginia Apple Pay is not welcome here.
  • America’s largest grocer, Kroger (NYSE: KR). Kroger operated 3,727 stores in 37 states under several brand names last year. It’s now larger because of its recent Roundy’s acquisition.


  • America’s largest club store operator and second largest discounter by volume, Costco Wholesale (NASDAQ: COST).


  • America’s second largest drugstore operator, CVS Health (NYSE: CVS).


  • America’s second largest grocer, Safeway, which now owns Albertsons.


  • All the major fast food chains except McDonald’s (NYSE: MCD) and Subway.


  • The dollar store operators, such as Dollar General (NYSE: DG) and Dollar Tree Stores (NASDAQ: DLTR). Dollar Tree alone operates up to 13,600 stores under the Dollar Tree and Family Dollar brand names.


  • Starbucks (NASDAQ: SBUX).


  • America’s third largest discounter by volume, Target (NYSE: TGT).


  • Convenience store 7-Eleven.

Apple Pay Is Still Coming Soon – Eight Months Later

Even more surprising is the list of brands that Apple Pay describes as “coming soon,” which is also virtually unchanged since May 2015. Back then Albertsons, Trader Joe’s, Dunkin’ Donuts, Kohl’s and Big Lots were described as coming soon. Guess what—they still are, which tells us that those retailers are dragging their feet.

These lists and the articles about them show us that Apple Inc. (NASDAQ: AAPL) has a serious problem here that is not being addressed. Even more bothersome is the latest addition to Apple Pay integration with store rewards programs. That is apparently only available at two major retailers: Walgreen (NASDAQ: WBA), the nation’s drugstore operator, and BJ’s Wholesale, a chain of club stores that only operates in certain regions of the country. Similar programs are supposedly in the works with struggling department store brands Kohl’s and JC Penney, but those names still appear on the coming soon list.

Why Are Retailers Not Accepting Apple Pay?

Another Apple Pay problem that Tom Cook and company have failed to address is the nature of the retailers accepting the solution. Most of them, like BJ’s and Whole Foods, are effectively outliers in their industries. The major players in some key areas of retail are still avoiding Apple Play as if it were the plague.

So why has Big Retail been so slow to accept Apple Pay, and could that change? There are actually several reasons for the slow go on Apple Pay, including:

  • Some retailers are trying to develop their own solutions. Walmart is testing its own Walmart Pay solution and participating in the Merchant Customer Exchange, or MCX. The MCX is a consortium of big retailers that is testing its own payment called Current C at a variety of stores and restaurants in Columbus, Ohio. Retailers want to develop their own payment solutions in order to reduce the number of processing fees they pay to banks and credit companies.


  • Retailers might be waiting until a number of alternatives to Apple Pay are on the market, possibly to keep Apple from having a dominant position. Currently, two Apple Pay alternatives, Android Pay from Alphabet (the company formerly known as Google) and Samsung Pay, are widely available, and a third that could be even more popular, Chase Pay from America’s largest bank, JPMorgan Chase (NYSE: JPM), is on the horizon.


  • Many retailers may not have installed the technology necessary to utilize Apple Pay. The reason for this is cost; one potential expense Apple might face is that big retailers could demand it pay for the new registers that take its payment solution.


  • There could be serious security issues with Apple Pay and its growing list of imitators. At least one retailer, Target, has been badly burned by cash register hackers in recent years.


  • Some retailers, such as Walmart and dollar store operators, might view Apple Pay as a niche product that only appeals to a small upper-income segment of the population. If you look at Apple Pay’s website, you see a multitude of high-end urban brands such as Whole Foods and Petco but a shortage of working-class retailers. Bloomingdales is present, but Kmart is nowhere to be seen.


  • The United States already has a widely used electronic payment technology that average people love: credit and debit cards. This technology is accepted everywhere, it works well, and with the use of pin numbers and ATMs, it can be used to withdraw cash, an option that digital wallets still do not offer.


  • Many people simply are used to using credit and debit cards. Payment by phone has been most successful in countries like China and Kenya, where credit cards are not widely used or accepted.

It looks as if digital wallets are going to be much tougher sell to the American people than Tom Cook thought. Even though the banking industry likes them, retailers do not, and average people do not seem to be rushing to embrace the technology.

Therefore it will take several years and the introduction of a number of competing brands of digital wallet to the market to get Americans to ditch their plastic cards for phones. Until then, Apple, Chase, Android and others face a long, hard battle to sell this concept to the American people.

Disclosure: Your friendly neighborhood blogger owns shares of Kroger.