Why is JCPenney dropping Apple Pay?

JCPenney ended support for Apple Pay in its stores and also removed the mobile payment option from its app, a surprising reversal for a brand that offered Apple Pay in 2015, within a year of its rollout.

When Apple Pay first launched, some major retailers boycotted the mobile wallet by shutting off NFC acceptance or simply refusing to add the technology if they did not already have it. Most of those stores have since changed their stance and now support Apple Pay — so what's changed?

There are multiple factors in play here. According to JCPenney: "A third-party credit card brand made the requirement for all merchants to actively support EMV contactless functionality effective April 13, retiring the legacy MSD contactless technology in place. Given the resources and lead time associated with meeting the new mandate, JCPenney chose to suspend all contactless payment options until a later date."

But that's not the only issue.

The requirement, part of Visa's EMV roadmap, is more challenging for a brand like JCPenney, which has seen softer sales recently. In February, JCPenney announced it’s closing 27 U.S. stores this year, after the chain’s same-store sales declined 4% in the fourth quarter of 2018 compared with the previous year.

Additionally, JCPenney may feel threatened by the new Apple Card, which is meant to be used primarily through Apple Pay. The retailer has also added top executives who came from the few major retail chains that still do not accept Apple's mobile wallet — and thus may not have seen Apple Pay as a priority given the retailer's other challenges.

JCPenney made the decision to remove Apple Pay for our stores, we apologize for any inconvenience this may have caused. We will definitely forward your feedback regarding this for review.

— Ask JCPenney (@askjcp) April 20, 2019

In killing off Apple Pay, JCPenney — still a major national retail power with 840 U.S. stores — is going the opposite direction of peers like Target, which finally added Apple Pay at all its stores after holding out for several years (Target has long accepted Apple Pay for online purchases only). Kohl’s was one of the earliest adopters of Apple Pay, and continues to accept it in its stores and online.

Walmart steadfastly refuses to accept Apple Pay in its stores, though Apple Pay remains an option for payment on its website.

The Walmart mindset may have carried over to JCPenney through an executive hire. Last week JCPenney announced it’s hired former longtime Walmart executive Steve Whaley as its new senior vice president, principal accounting officer and controller. Whaley held the same post at Walmart for 11 years.

JCPenney last fall named a new CEO, former Joanne Stores chief Jill Soltau, and is still searching for executives to fill several other top posts as part of an overhaul the company announced in January. In February JCPenney said it will no longer sell appliances and furniture will only be available online. Those moves underscore broad merchandise challenges in the department store niche. Rival Sears filed for bankruptcy last fall and reorganized, now operating only 400 stores.

One analyst wondered if JCPenney’s decision could have anything to do with Apple’s recent move to directly challenge credit card issuers with its own Apple Card launching this spring with Goldman Sachs. The new card introduces a series of features including a streamlined application process, no annual fee and a rewards structure that favors digital purchases over those made with the card.

“You have to wonder if Penney’s move is a posture against Apple Card, but it makes no sense, because the only way merchants can compete with Apple Card is to keep up with Apple Pay by continuing to accept it through their own channels,” said Richard Crone, a principal with Crone Consulting LLC.

For online purchases, JCPenney accepts its private-label card, its co-branded Mastercard, all major credit cards and PayPal.

JCPenney targets a lower-middle tier of U.S. consumers, and a higher proportion of its transactions likely are cash, according to observers. Removing Apple Pay could possibly discourage the use of the store's own cards.

Banks have long grumbled about the fee Apple charges—estimated to be 10 to 15 basis points—on credit card purchases. But Apple has never charged merchants a fee to participate in Apple Pay.

Even if JCPenney’s data shows its Apple Pay users are a smaller subset of customers who pay with cash or other methods, about half of all smartphone owners have iPhones, and users cross a wide income spectrum, according to Crone.

“Ending support for Apple Pay makes no sense, because the unintended consequences of frustrating consumers who might have paid with Apple Pay couldn’t be worth it,” he said.