Grocery chains held out on Apple Pay. COVID-19 might change that.

When pandemic lockdowns started approximately 20 years ago in March, Texas Monthly published a lengthy and impressive look into how regional grocer giant HEB had prepared for the pandemic.

The article went viral on Twitter for showcasing how a single grocery chain had done a better job preparing for COVID-19 than many state governments, including Texas itself. It’s a very good read, laying out how the company took steps to both restock its shelves quickly after the initial run on grocery stores, increase employee compensation and restructure hours, and make sure that store layouts could adapt to social distancing. Amazingly though, there’s one crucial change the chain did not make. Customers still need to use their physical credit cards to buy groceries instead of using contactless payments like Apple Pay.

Customers still need to use their physical credit cards to buy groceries.

HEB is my grocery store of choice and I’ve been very impressed otherwise with how they handled the pandemic. I’ve always felt safe and confident shopping there — but the checkout process is still inconvenient. Yes, there are markers for social distancing while you wait, plexiglass as far as the eye can see, and staff at the ready to wipe down every conceivable surface, but even with all this caution taken, in order to buy my groceries I still need to take out my credit card and put it into a machine that’s been touched by thousands of people a day. Yes, I can download their proprietary app to checkout, but using apps to checkout in-store is an awful experience. Just let me tap my phone or watch!

The benefits of contactless payments are numerous even when there isn’t a pandemic. A unique number is generated every time you use your card, greatly reducing the chances your card number can be stolen if someone intercepts the transaction, or even if the retailer’s own computers are hacked. Contactless is also just more convenient and faster for the user. Importantly for the pandemic, however, using contactless payments means you’re interacting with one less surface while out in public.

Apple Pay had an impressive launch lineup of partners. Because Apple had worked with the banks and credit card vendors and not around them, the company was easily able to get every company that mattered on board with the program. After all, more people using contactless payments meant fewer fraud charges for American Express and Chase to deal with. The bigger hurdle was merchants. Not every store had NFC compatible readers yet and, while Apple was able to get big names like McDonald's and Whole Foods on board, in the early days Apple Pay was more of a novel discovery than commonplace. Today the story is much better, with nearly all major merchants, from fast-food chains to big box stores, accepting NFC payments. Companies like Square also introduced NFC compatible readers to help independent stores accept contactless payments.

Despite the widespread availability of NFC payments, the technology has struggled to gain widespread use among U.S. consumers. According to a study from PYMNTS, Apple Pay is used in about 5.1% of transactions. It’s very likely that the technology is struggling to become the primary way people pay because it’s still not available at many locations of the most important place people shop: the grocery store.

Grocery stores are very regional businesses, so your local chain may very well have contactless payments set up. Boutique chains like Trader Joe’s and Whole Foods also have rolled out contactless payments, but the country’s largest grocers, Walmart and Kroger, have yet to get on board alongside many regional chains.

The technology is struggling to become the primary way people pay.

Depending on how good your memory is, you might remember that there was another obstacle in the way of Apple Pay’s rollout in 2014, a company nobody had heard of, called MCX, and its app, CurrentC. CurrentC was built by retailers in an attempt to shift payments away from credit cards and avoid the 2% or 3% fees that came with them. Customers would link their bank accounts to the app, which was needed to scan a QR-code every time they checked out at a participating retailer. This was, notably, a far less convenient process compared to NFC payments, which are initiated by a quick button press and biometric authentication and finished as soon as the device is brought near the card reader. In 2014, MCX had locked dozens of large merchants into exclusivity contracts that prevented them from accepting NFC payments, and to make matters worse, CurrentC wasn’t even close to launching nationwide.

CurrentC failed in large part because it solved a problem for retailers, not customers, and the company’s technology was sold to J.P. Morgan for what would become the peer-to-peer payment network Zelle. Despite its failure, though, the DNA of CurrentC still lingers in the retail space, most notably, at grocery chains.

Walmart has Walmart Pay, Kroger has Kroger Pay. Southern chain Publix and the aforementioned HEB also have their own payments app. Though different in name, they’re all QR code-based payment products. While they don’t accomplish CurrentC’s ultimate goal of getting around credit card fees, you still need to link a regular credit card to use them, and existing inside an app gives these companies incredible insight into consumer habits.

As inconvenient as they are to use, there’s a reason that grocery stores are able to try and force QR codes on customers where MCX could not. In many rural communities, Walmart is the only grocery store people have access to. In bigger cities, shoppers go to the store that is nearest or, if they are near several grocery stores, the one that offers a selection that best fits their needs or where they are "loyalty" members. Whether by choice or by consequence, people are loyal to their grocery store, and, for many, the lack of NFC payments isn’t enough for them to change their habits. It certainly isn’t for me. However, QR payments still lag behind Apple Pay in user adoption, with PYMTS estimating in the same study that Walmart Pay makes up 3.3% of eligible purchases.

People are loyal to their grocery store.

The story for contactless payments at grocery stores isn’t all bad, however. In April, Publix announced it was finally enabling NFC payments in all of its locations, specifically citing the Covid-19 pandemic as a primary driver behind the shift. Kroger also announced in August it will be piloting NFC payments in a small number of its stores in the Northwest. The pressure to finally adopt the most convenient way to pay appears to be breaking through to more grocers.

To grocery stores’ credit, it’s not like they have all been completely stuck in the past during the pandemic. Many companies rolled out their curbside pickup options to more locations, or even came up with in-house solutions for grocery delivery. It’s not like grocery stores are totally averse to new technologies. It just seems that the hesitance to adopt NFC payments is driven by a “what’s in it for me” mentality. If credit card fees won’t go down, why bother implementing a checkout process championed by credit card companies?

The pitiful adoption rates of NFC payments versus in-house QR payments like Walmart Pay show that this is a war of attrition. NFC payments are convenient but still aren’t in the most important stores, while QR payments are in the most important stores but are totally inconvenient. Until every major merchant gets on board with NFC payments, shoppers have shown they’ll just stick with their physical credit cards.

The logic tracks. If a customer, who normally prefers NFC payments, is going on a day of errands but doesn’t know if all the stores they’ll go to will accept NFC, it stands to reason that they will continue bringing their wallet to use their physical cards wherever they shop. Lack of awareness is likely also a cause. Many merchants who chose to start accepting contactless payments did so quietly, showing little more than the contactless payment symbol on their credit card machines. It’s easy to miss, and by the time customers notice it, they often already have their physical card out. And if they see the words “download our app” on the kiosk… well, forget it.

It seems that nearly seven years of pressure from customers and the largest company on earth, Apple, was not enough to get NFC payments to be universally available. But Covid-19 could be that final push needed. Frankly, it's long overdue. With its acquisition of Whole Foods, Amazon has set its sights on groceries as the next space it wants to dominate. There are dozens of meal subscription startups like Blue Apron and Hello Fresh also attempting to disrupt the sector. It’s in grocery stores’ best interests to make the process of shopping as painless as possible by leaning into technology at every turn instead of risking losing their existing foothold to more convenient monopolists.