High Expectations for Apple Pay in the U.K.

Navigator Edition: June 2015
By: Chris Dickey

Apple has announced that Apple Pay will be launching in the U.K. in July. The announcement was widely expected, and is a logical next step for Apple: the U.K. is the largest cards market in Europe, with £574 billion in card spend last year,1 high penetration of Apple handsets, high penetration of contactless terminals, and proven consumer willingness to pay with contactless.

One-third of U.K. consumers have an iPhone (see Figure 1), and Apple Pay has broad-based support from U.K. issuers. Launch banks for Apple Pay include First Direct, HSBC, NatWest, Nationwide Building Society, Royal Bank of Scotland, Santander, and Ulster Bank, with Bank of Scotland, Coutts, Halifax, Lloyds Bank, MBNA, M&S Bank and TSB Bank following this fall. Barclays is a notable omission from the initial launch partners.

Figure 1: 2014 Smartphone OS Penetration of Total Population in Select Markets

Fig-1_-Smartphone-OS-Penetration-of-Total-Population-in-Select-MarketsSource: StatCounter Global Stats, Google Consumer Barometer, and First Annapolis Consulting analysis.

Over 400,000 POS terminals are contactless-enabled in the U.K. (25% of the installed terminal base), and Apple claims that over 250,000 merchant locations will accept Apple Pay at launch, including a number of merchants consumers use every day (e.g., Transport for London, Boots, BP, Costa Coffee, KFC, LIDL, Marks & Spencer, McDonald’s, Pret A Manger, SPAR, Starbucks, Subway, and Waitrose). The U.K. has a £20 limit on contactless transactions (due to rise to £30 in September) which means that transactions over the limit will require verification (today that verification is PIN). With Apple Pay, we believe Touch ID should suffice for verification in most cases but many retailers will require a terminal hardware or software upgrade to remove the limit for Apple Pay. Due to MasterCard and Visa mandates around contactless terminals, we expect that contactless terminal penetration will approach 100% in the U.K. (and most of Europe) by 2020 or even sooner.

Figure 2: 2014 Contactless Terminal Penetration in Select Markets

Fig-2_-Contactless-Terminal-Penetration-in-Select-MarketsSource: Euromonitor, U.K. Cards Association, Informa, CB, Wirecard, and First Annapolis Consulting analysis.

The U.K. will be an interesting test bed for the movement of customers from contactless cards to Apple Pay. The U.K. currently has the highest contactless usage of any market, but virtually all of it is on cards. There were 319 million contactless transactions, worth £2.3 billion, performed in the U.K. in 2014, and while this represents only a fraction of total card spend, both transactions and volume are experiencing year-over-year growth of more than 100%.2 Much of the growth is being driven by the adoption of contactless payments for public transit: Transport for London began accepting contactless bankcards for public transport (with no need for a separate purchase/ticket) in September 2014 and is now generating more than 1 million contactless transactions per day. Transport for London will be supporting Apple Pay when it launches, and Apple Pay is likely to benefit from a strong use case in this sector.

Given consumers’ ready adoption of card-based contactless payments, the rapidly growing contactless terminal base, and the strong support of most of the local issuers, expectations are high for the growth of Apple Pay in the U.K.

1, 2 U.K. Cards Association.

For more information, please contact Chris Dickey, Consultant,, based in Amsterdam, specializing in Credit Card Issuing.

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