Apple Pay's Lack of Loyalty Perks Is a Smart Move

The most striking thing about Apple Pay's recent loyalty announcement is that it included no loyalty program for Apple Pay.

Apple did include acceptance of retail loyalty cards — ones that encouraged loyalty to that retailer — but nothing to encourage loyalty to Apple Pay. For mobile payments, and Apple, that may be for the best.

Before Apple Pay can launch a successful loyalty program — where shoppers would get discounts or other incentives to use Apple Pay instead of magnetic stripe or EMV — consumers first need a reason to aggressively embrace broader mobile payments, and merchants are better suited to encourage that change.

Given the sharp behavioral change that mobile payments require, if no one pushes consumers, it will be almost impossible to get mobile payments out of single digits of all payments. Without incentives, it's unclear if mobile payments can even get to one percent any time soon.

The rationale for avoiding an Apple Pay-led loyalty play is a healthy long-term mobile payment market needs to feel constantly present, just like plastic payment cards today. A U.S. consumer can be confident that a Visa or MasterCard in his pocket will likely pay for anything he'll need. To get that kind of mobile payment omnipresence will require massive support from retailers of all sizes, and it's better for Apple to position itself as a partner.

With that merchant support in place, mobile payments have a shot. But what will make consumers change purchase behavior if cash incentives don't materialize? The answer is changing demographics — and again Apple is wise to go slow with discount enticements. The younger consumers today practically live on their phones and it won't take much encouragement to spur mobile payments adoption.

"What Apple is relying on is that if they get the distribution they need, the consumer side will take care of itself," said Thad Peterson, payments analyst for the Aite Group. "This is a long-term view, a five-year perspective. You would then have the ecosystem needed to drive this volume."

To do this, Apple has launched a decidedly pro-retailer strategy, agreeing to let merchant-specific loyalty cards into Apple Pay ahead of Apple Pay incentives.

Also, a feature that will allow Apple Pay to detect when a shopper is within a partner retailer — say, for example, Kohl's — and then automatically launch that retailer's loyalty and payment card, may have an even greater impact when encouraging mobile adoption. Apple Pay is already doing something similar to this — Amazon's loyalty card has been supported within Apple Pay from the day Apple Pay launched in October, but Amazon's card is seen as simply a Chase card, which was an Apple Pay sponsor bank partner.

Apple has been notorious in pressuring retailers to accept Apple Pay, with threats to interrupt the flow of Apple products to any retailer who refused. But even Apple now understands that if it's going to dominate the mobile payments market, it has to first make sure that there is a viable mobile payments market. And for that, retailer support is essential.

Evan Schuman is a reporter for PaymentsSource.