Apple Pay Takes Its 'Next Step' with Walgreens Rewards Integration

Unlike Rite Aid and CVS pharmacies, which cut off contactless Near Field Communication (NFC) payments when Apple Pay launched in October of 2014, Walgreens never bucked the Apple Pay trend and did not take long to start accepting transactions from Apple's mobile pay service.

A year later, Walgreens has taken an even deeper dive with Apple Pay, becoming the first company to provide its customers with an option to earn loyalty rewards points through a branded Walgreens product as part of an Apple Pay transaction.

The integration with Walgreens signals the next step for Apple in the consumer adoption process for mobile wallets by tying in loyalty programs, following the lead of closed-loop systems like Starbucks. After Apple Pay was in place for nearly a year, and Google reintroduced its wallet as Android Pay, most industry observers agreed the missing ingredient that both would pursue was a seamless addition of loyalty and rewards.

"This is absolutely the shape of things to come," said Nick Holland, an independent mobile and digital payments analyst. "It's a true value-add you can now get with Apple Pay and a win-win for consumers, getting the loyalty points without a separate double-tap process."

Balance Rewards members with iPhone 6 smartphones or an Apple Watch will be able to use their digital rewards account card in the Apple Wallet to earn and redeem loyalty points when using Apple Pay. Users will not have to scan a rewards card or barcode, as Apple Pay operates through contactless NFC and biometric Touch ID technology.

Rite Aid and CVS blocked NFC initially as a signal of loyalty as members of the Merchant Customer Exchange mobile wallet initiative. CVS is still not accepting Apple Pay, but in a change of heart probably unrelated to the fact that Walgreens is acquiring the company, Rite Aid began accepting Apple Pay three months ago.

"It is kind of a shot across the bow to MCX," Holland said. "Even with ChasePay, MCX hasn't really ignited anything yet."

Even though MCX has not officially declared a rollout date for its CurrentC mobile wallet, which will operate on QR code technology, it did land the support of ChasePay last week as partner for consumer adoption, and payment integration with no network fees.

"I have used both Apple Pay and Android Pay at Walgreens," Holland said. "So they are ahead of the mobile payments curve in the pharmacy space, and they know it's all about value proposition and a seamless process."

By bringing Apple Pay into its loyalty program, Walgreens continued its recent trend of advancing mobile payment and commerce for its customers.

Walgreens is in a great position by combining mobile and loyalty, especially since it is acquiring Rite Aid, which "really opens things up" for technology advancements, said Thad Peterson, senior analyst with Boston-based Aite Group.

"The right place to be in this upcoming battle is on the open-loop side of the equation," Peterson said. "With Apple developing the loyalty capability, while not perfect yet, it is directionally correct and not a bad place to be with Walgreens; it just makes a whole lot of sense."

Walgreens has been considered a step ahead in the payment/loyalty process on the plastic card side by linking its Balance Financial Prepaid MasterCard to its new Balance Financial Services offerings and allowing consumers to earn rewards at the same time with one swipe of the card.

For the past few years, Walgreens has worked to bring its customers' mobile payments options into a full service with its health care and Balance Rewards programs.

Expanding upon its value-add services for customers, Walgreens recently added Western Union bill payment services, housing the WU offering in the financial services kiosks in the stores.

Walgreens did not respond to inquiries prior to deadline, but Sona Chawla, president of digital and chief marketing officer for Walgreens stated in a Nov. 5 press release that the Apple Pay integration "supports our commitment to removing friction and enabling a simple and convenient customer experience."