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Why Apple Pay is important for restaurant operators big and small

Apple tries to make everything easy for consumers and that usually equals widespread consumer adoption down the road.

September 12, 2014 by Will Hernandez — Editor, NetWorld Media Group

Editor's note: Will Hernandez is the editor of MobilePaymentsToday.com, a sister website of QSRweb.com, PizzaMarketplace.com and FastCasual.com.

Restaurant operators are notorious for shying away from, and even ignoring, new technologies. Near Field Communication (NFC) is not new, but it received a major boost this past week when Apple announced its new mobile payments system that is a key feature on two new iPhones and a smartwatch.

Apple Pay is both an in-store and in-app/online play. Not only can users pay for a burger at McDonald's using their NFC-enabled iPhone at a contactless point-of-sale terminal, but they can also pay for a food order within Panera’s order-ahead mobile app. In both environments, consumers authorize and confirm the purchase using Apple’s TouchID fingerprint reader. Apple will also use a security protocol called tokenization (also an old technology) to protect sensitive payment card information.

So, why is Apple Pay important for restaurant operators, particularly smaller regional chains and independent operations?

Apple takes existing technology and moves it forward in some significant ways. That is what it has done for years. In NFC’s case, Apple integrated it into the Apple Pay process to make its mobile payments capability simpler. Apple tries to make everything easy for consumers and that usually equals widespread consumer adoption down the road.

Apple users then will come to expect Apple Pay as a way of life, for better or worse. They’ll want to pay for a cupcake, sandwich or latte with their iPhone because it looks cool. Consumers might seek out your store if you accept Apple Pay. Apple consumers want to use all the bells and whistles included with their devices. Apple Pay will be no different, but it will take time.

Apple Pay, however, does have some initial shortcomings. Apple and its merchant partners have no Apple Pay-related rewards to offer consumers. They did not reveal such plans this week, but many industry experts believe something is coming in the next year. And that is where an opportunity exists for restaurant operators to consider Apple Pay, or other mobile wallet systems such as the Merchant Customer Exchange, LevelUp, or Softcard (formerly known as Isis).

Loyalty tends to drive more transaction volume and many experts believe this will help boost mobile payments, not just Apple Pay. Starbucks, of course, is the poster child for success. But not everyone sells an addictive product such as caffeine. Merchants need to find what loyalty offers work best for the products they sell.

Another loyalty aspect of mobile wallets is location-based offers through what’s called Bluetooth Low Energy (another old technology). LevelUp, which is a hit with specialty food establishments, offers its partners BLE capabilities. BLE, commonly referred to as beacons, enable merchants to ping a customer’s smartphone with offers. Merchants use a separate beacon device to send offers. Apple did not reveal any plans for how iBeacon will interact with Apple Pay, but you can bet something will happen down the road.

If McDonald’s and Subway experience a sales bump from Apple Pay, others will follow, maybe even before then thanks to Apple’s allure. This will not happen overnight, and there are other options for restaurants to consider. MCX (which Wendy's began offering earlier this year) will offer its CurrentC mobile app next year. While that system will use barcode technology, a robust loyalty scheme is planned. But there's a catch: if you accept CurrentC, you cannot accept Apple Pay in-store. MCX is an exclusive partnership as far as the physical point of sale is concerned.

Restaurant operators also will need to determine if Apple Pay acceptance is worth upgrading to a more expensive contactless chip card terminal as the EMV transition takes place in the U.S. EMV stands for Europay, MasterCard, Visa and is a chip-based card payment. It’s a standard in the majority of countries worldwide. MasterCard and Visa in October 2015 are shifting the liability to merchants if fraudulent cards are used at point-of-sale terminals that do not accept chip cards (the magnetic stripe will still be present). Depending on a restaurant’s size, EMV might not be necessary because fraudulent cards are usually used to buy large-ticket items such as electronics. But if restaurants want to accept NFC-enabled mobile payments, they’ll need to upgrade. If you already have a contactless terminal, you can already accept Apple Pay thanks to deals Apple has with American Express, Visa and MasterCard.

Restaurant operators should work with their merchant services providers to discuss the pros and cons of different mobile wallets. But make no mistake, Apple Pay creates a large amount of buzz for mobile payments. It can’t be ignored.

About Will Hernandez

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Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.

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