Will Apple’s Digital Wallet Kill the Card Swipe?

Apple wants the plastic credit card to become as rare as the paper check. Last Tuesday, the company announced Apple Pay, a digital payment system that lets people pay for retail store purchases using their phones rather than cash or credit cards. The service, which will work both with iPhones and Apple's new Watch, is backed by a host of big retailers, along with most major banks and credit card issuers, including Visa, MasterCard and American Express.

So-called contactless payment isn't new. Starbucks, McDonald's, PayPal, Google and Square offer their own services, but only a small portion of customers use them. Some experts believe Apple Pay -- with its presence on millions of iPhones and its advanced security features -- could be the service that leads to widespread adoption of the digital wallet.

Safety Is Key

Citi Investment Research analyst Mark May believes the sum total of mobile payments could grow from $1 billion in 2013 to $58.4 billion by 2017.

Payment digitization paints an enticing vision of shopping's future: simply tap your device against a checkout screen and walk away with your new shoes.

But despite the flashy Apple Pay launch, Apple faces challenges making that vision a reality. The company and other digital wallet providers must convince shoppers that the transactions are safe -- especially in the wake of recent high-profile data breaches at Home Depot and Target. Meanwhile, the company must also make a case to retailers that it's worth it for them to invest in new point-of-sale systems.

Many U.S. merchants still aren't sold on the idea. About 220,000 stores are set up to accept Apple Pay. That's only 5.5 percent of the 3.6 million retail locations in the U.S., according to the National Retail Federation. The biggest U.S. retailers, including Wal-Mart and Best Buy, are not participating in Apple Pay.

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