Apple Pay launches in Britain as holdout Barclays signs up

By Eric Auchard

LONDON (Reuters) - Apple (AAPL.O) introduced its mobile payments service to Britain on Tuesday as Barclays became the last major UK bank to sign up for the U.S. tech giant's effort to capitalise on the increasing comfort among British consumers with making tap-and-go purchases.

A quarter of a million outlets will offer Apple Pay, from London Underground stations to coffee shops, retailers and travel businesses, making it more widely available than when it first launched in the United States last year.

Tap-and-go payments have surged in recent years, with growing acceptance by banks, retailers, credit card issuers and consumers. The tipping point in Britain came with the London Underground's introduction of "contactless" payment methods.

"We actually think that the UK can be our leading market for Apple Pay, given the unique characteristics (of the market)," said Jennifer Bailey, vice president of Apple Pay.

Convenience, as ever, is key and Apple says its new service is even quicker than rival contactless payment options. Set-up is via an Apple app on an iPhone 6 or late-model iPad. Customers use the built-in camera to scan an image of their credit or debit cards and then confirm their details by text message, email or a phone call from their bank.

To make payments, customers hold their phone, tablet or Apple Watch near a merchant's existing contactless terminal while touching the mobile device's fingerprint ID button or by double-tapping on the face of their smartwatch.

The beauty of the scheme for Apple is that it offers another way to bind customers more tightly to its phones, tablets and watches, selling more of its products, while also taking a small slice of the bank transaction fees on each payment made.

However, UK banks have negotiated a harder bargain with Apple on the interchange fees the parties split on each transaction than comparable deals with U.S. banks, the Financial Times reported, citing unnamed banking sources.

While Apple is estimated to reap about 15 cents on every $100 worth of transactions in its home market, in Britain it gets “significantly less” — only a few pence per £100 transaction, according to banking insiders cited by the FT.

RESISTANCE FADES

NatWest (NWB_pa.L), Royal Bank of Scotland (RBS.L), Banco Santander (SAN.MC) were among the first banks to begin offering Apple Pay to their clients on Tuesday, and it will eventually be supported by all major British banks.

The last holdout, Barclays (BARC.L), confirmed on Tuesday that its customers will be able to use Apple Pay at an unspecified date in the future. HSBC (HSBA.L) will follow later in July and other major banks plan to offer it in the autumn.

To start, 70 percent of all UK credit and debit cards will accept Apple Pay, including cards offered by MasterCard (MA.N), Visa Europe and American Express (AXP.N). That figure will top 82 percent once Barclaycard is ready, Bailey said.

"We have been surprised that so many banks have signed up to support Apple Pay," said Benjamin Ensor, an analyst at Forrester Research. "It's worth asking what Apple Pay brings that the banks can't do themselves."

His answer is that Apple has managed to win over banks, retailers and even telecoms network operators that had refused to cooperate with one another for similar services.

Ensor, however, has yet to be convinced that Apple Pay will win both the hearts and minds of customers in the way the company's other products have.

"Are people crying out for a really different method of making payments? I think that's not yet clear," he said. "Consumers just want to buy stuff."

Apple has signed up the London Underground and retailers including pharmacy chain Boots (WBA.O), Costa Coffee and supermarket chains Marks and Spencer (MKS.L) and Waitrose in a bid to increase everyday use of Apple Pay by consumers.

LOYALTY LESSON

The U.S. company had learnt from Apple Pay's launch in its home market last October, when a number of major chains pushed back because the service did not work with the customer loyalty cards that many retailers rely on to collect customer data.

Last month Apple said it would begin accepting private-label credit cards and that retail chains can work with the company to upgrade their other loyalty programmes to work with Apple Pay.

"We are actively working with UK retailers on loyalty programmes," Bailey said.

Analysts said that while contactless payments have caught in London, adoption has been slower across the country. However, Apple said it was working with retailers and e-commerce sites to support take-up.

But the speed with which Apple has built consumer electronics franchises, often with simultaneous product launches in dozens of different countries is unlikely to be duplicated with Apple Pay. Payment systems have a very different mix of local players in each market, forcing Apple to develop partnerships country by country.

"We are actively working on expansion plans," Bailey said. She declined to comment on reports that China, South Korea and Canada could be among the next markets to offer Apple Pay.

(Additional reporting by Sinead Cruise and Steve Slater in London and Julia Love in San Francisco; Editing by David Goodman and Tom Brown)