Could Apple Pay help mobile wallets take off in the UK?

By Ian Halstead

Mobile wallets, which store your credit or debit card information on your smartphone and can then be used at in-store checkouts, have been the topic of many conversations over the last year, but so far, they haven't become widely popular in the UK. However, the arrival of Apple Pay for iPhone users may change the mood when it comes to the UK later in 2015.

Why mobile wallets are lagging behind
Apple Pay users upload their card details to their handset, which contains a near-field communications (NFC) chip that allows them to pay by waving their phone over an NFC-enabled payment terminal. To complete the purchase, the user must either enter a password or hold their thumb over a thumbprint scanner on the phone that verifies their identity. mobile-wallets

While the thumbprint scanner adds a reassuring extra layer of security to the payment, Apple Pay's biggest challenge is that it's only available for the iPhone 6 and iPhone 6 Plus, leaving all other iPhone users and millions of Android users out of the loop.

Even if Apple Pay overcomes those hurdles overseas, success in the UK is far from guaranteed. Consumers here have been unimpressed by mobile wallet offerings so far, at least partly because of security concerns. It may be that UK consumers only make the transition to mobile wallets via online wallets, though those too are experiencing tepid uptake.

David Futter, a managing associate with the London-headquartered law firm Addleshaw Goddard, led negotiations for Visa Europe on the development of V.Me at his previous firm, covering how the online wallet would be provided and the service managed.

"The talks between potential providers of the wallet and Visa were very lengthy, because there were -- and still are -- major strategic challenges," Futter says. "The potential of a mobile digital payment solution was obvious, but even since we've seen the arrival of Apple Pay, it's still a slow burner in this country. There's been a huge amount of noise on the topic, but everyone's been saying it's the next 'big thing' for several years, and it still isn't."

According to Futter, one of the real inhibitors to mobile wallets is consumer concern about security, something he says is still very evident in the UK despite mobile wallets' popularity in other countries.

However, he feels the major drag on adoption is the requirement to deliver demonstrable benefits to all the parties involved. "You have to keep everyone in the value chain happy: consumers, retailers and the banks or financial service providers, and so far there hasn't been a value proposition which appeals to all of them," Futter says.

"I can't see anything happening in the very short-term. Maybe Apple Pay will be the big thing that cracks the merchants, and drives the digital wallet forward. It'll be interesting to see what happens, say six to eight months on, but even then it may be too soon, and it could be 2016 before it really takes off here."

MasterCard, Visa continue to push their digital wallets
MasterCard and Visa are still wedded to their online digital offerings, but they have also been slow to take hold with British consumers.

MasterCard has partnered with MBNA, the first UK credit card issuer to trial the MasterPass digital wallet. They'll look to roll out the product to MBNA consumers when the pilot ends in early 2015.The service can store payment details from any card. Users then click the MasterPass button on a retailer's site, choose their preferred card and confirm their identity with a password at the checkout. 

Visa Europe is determined not to let MasterCard steal a march, and plans to invest €200 million more in its product. The online wallet, which works in a similar way as MasterPass, has failed to make a significant impact since it debuted in the UK in November 2013 through financial services provider Nationwide.

A Nationwide spokesperson said in an emailed response to questions that "thousands" of its customers were using the wallet -- a very low take-up given that it has 6.5 million credit and debit card customers.

Though Visa Inc. has ditched the original wallet in the US, Canada and Australia in favour of a new stripped-down online version called Visa Checkout, the company's European arm remains committed to for now.

See related: Could mobile payments replace your plastic?, How safe is unverified, contactless card technology?

Published: 20 January 2015