Recent Hiccups Hindering Apple Pay

A recently released consumer survey finds that more than two-thirds of people who attempted using Apple Pay in-store had problems at the point-of-sale and many were not able to make the purchase from their mobile device. These consumer frustrations follow recent news of lax authentication with issuing banks leading to high rates of fraud on cards from at least a handful of financial institutions.


Apple Pay has gotten off to a fast start as it is already accepted at more than 700,000 locations and supported by 2,500 issuing banks in the United States. It sent a jolt through the mobile payments market and likely influenced major acquisitions and investments from competitors now launching Android Pay and Samsung Pay services. There have been a few bumps in the road, however, and a new survey weighing in on consumer experiences with the mobile contactless payment system highlights some of these issues.


Phoenix Marketing surveyed about 3,000 consumers in late February, of which just more than 1 percent had made a purchase with Apple Pay. While the sample size is relatively small some of the findings still present concerns and highlight the frustrations of early adopters. Overall, 68 percent of consumers that have used Apple Pay encountered some problem when trying to make an in-store purchase. About half of respondents complained that the merchant’s payment terminal took a long time to record the transaction while 47 percent of consumers went to a merchant that is supposed to accept Apple Pay but that particular location was not equipped to do so.


Consumers cited both technical and customer service related issues around Apple Pay. Of those surveyed who had tried using Apple Pay in-store, 42 percent said the employee did not know how to process or accept the Apple Pay transaction. Technical issues included errors in how the transaction posted to their payment card statement (such as duplicate billing), as indicated by 36 percent, and NFC payment terminals being out of service, which 27 percent of surveyed Apple Pay users reported.


At the time of the survey Apple Pay had been available and accepted in the market for about 4 months, and these are the types of problems that are expected when a new payment product launches. Consumers, however, also showed some indication that they are willing to be patient as these issues are sorted out. The most cited factors for why consumers want to use Apple Pay are the ease of versus using a credit card, as cited by 74 percent of consumers, and the fact that Apple Pay is hip and cool, cited by 59 percent.


Consumers and merchants are not the only ones who have experienced some miscues with Apple Pay, card issuers have as well. As issuers bear much of the liability with fraud on Apple Pay it is each issuer’s responsibility to approve when a card they issued can be provisioned a token (what Apple calls a Device Account Number) to be used with Apple Pay. In early March there where grumblings throughout the industry that certain financial institutions were seeing high rates of fraud associated with Apple Pay. While this generated a lot of speculation of whether or not Apple Pay was secure, further investigation found that it was certain issuers that were at fault, although which ones and how large the losses were have not been fully disclosed.


Multiple industry analysts have reported that the fraud rate with Apple Pay transactions was as high as 6 percent and 8 percent for some individual issuing banks, although these were private reports from financial institutions that remained unnamed and no bank has discussed Apple Pay and their fraud issues on record. Following reports that fraud was a problem with Apple Pay, Apple and some of their larger FI partners released statements that the reports were overblown and that while some issuing banks may have had isolated issues fraud is not rampant on Apple Pay as a whole.


Fraudsters were able to obtain Device Account Numbers representing compromised cards to make purchases via Apple Pay. Issuers who did not take enough measures to authenticate that it was the real cardholder trying to add the payment card to their device allowed the tokens to be provisioned. When a consumer attempts to add a payment card for use with Apple Pay, Apple provides iTunes account information, device information and location information to help issuing banks make a determination on whether or not to approve it. Many issuing banks have since increased authentication measures and may require additional checks when activity seems suspicious. Additional authentication measures include sending one-time passcodes to the consumers confirmed email address or mobile number, requiring the consumer to approve the request by logging in to their online banking portal, or calling to speak with a representative who will verify the cardholder.


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