Apple Pay will eventually be more than just a way to quickly make payments in-store and in-app. But how it evolves depends on the scope of Apple's ambitions.

Apple Pay is just over 15 months old and supported in five countries, including the U.S., U.K., Canada, Australia, and, most recently, China. But along the way, the company has faced criticism from banks, merchants, and customers, all frustrated by limitations of the service's capabilities.

Unfortunately for Apple, many of Apple Pay's irksome issues are completely out of the company's control. As with Apple's rumored TV streaming service, other companies have sufficient leverage to make demands of the world's biggest corporation. In the case of Apple Pay, it's credit card-issuing banks and local merchants.

From there to here

Like most mobile payment systems, Apple Pay began with a modest proposal: to simplify and secure credit card payments by removing the need for a physical card.

When Apple Pay debuted in 2014, it became apparent that Apple made the right decision in partnering with the banks — the companies that issue credit cards on behalf of payment networks Visa and MasterCard — because there are nearly 200 million Americans with credit cards, and disrupting an industry of that size and complexity takes time.

Rather than forge off on its own path separate from the banks and merchants, Apple did what it does best: The company made the right deals and adopted the right burgeoning standards. It built Apple Pay with EMV (Europay, MasterCard, and Visa) chip-and-pin and tokenization in mind, hoping it would incentivize merchants to upgrade their terminals in support of NFC (near field communications)-based tap-to-pay, which Apple Pay relies on.

In addition, Apple emphasized the security angle: EMV technology substitutes a credit card's magnetic stripe for a small storage chip, which has proven to be more difficult to clone and nearly impossible to hack using person-in-the-middle interception attacks.

Tokenization pushes that security aspect forward further by randomizing a credit card's PAN — the 12 digits we all know as our credit card numbers — so that only the current payment network knows the real numbers. Should an interloper get ahold of those tokenized numbers, they will either be useless, or only useful for one or two transactions. Once the token has been disabled, access is cut off, saving your credit card from being cancelled in the event of fraud.

Apple Pay also forces customers to use a second factor of authentication: a fingerprint. Using biometrics such as Apple's Touch ID sensor, the payment network is reassured that the person making the payment is actually the credit card's owner; the merchant is reassured, from a liability standpoint, of the same thing.

A growth market(s)

Mobile payments are tricky, because every country has infrastructure influenced by government regulations and anti-fraud practices. In the U.S., Apple Pay launched around the time Visa and MasterCard shifted fraud liability to merchants for payments made using a credit card's magnetic stripe.

That means that if a merchant accepts a magnetic stripe-based payment from a stolen credit card, they must pay back those funds. Payment networks like Visa and MasterCard believe that EMV-based payments are the future, and have been pushing their adoption in countries like Canada, Australia, the UK, Spain and many others since 2010. They're now confident enough in the underlying technology that they are willing to wear the financial burden of merchant fraud.

Unfortunately, one of Apple Pay's biggest pain points in the U.S. is still the overall lack of acceptance at merchants. By Apple's own count, the service is accepted at over two million "locations" in the five launch countries, but many big-name brands like CVS and Walmart have either refused to support the service, or have supported a competitor like CurrentC, which woefully lacks both security and scruples.

It's a different story entirely in Canada, where I live, as well as the UK and Australia. Here (and there), most merchants have either already upgraded to NFC-capable payment terminals, which let credit card owners tap their physical cards against a terminal to pay without entering a PIN or signing a receipt, up to a pre-determined amount — usually between $50 and $100.

That convenience has also been a huge stumbling block to adoption in countries with mature payments infrastructures. While tapping an iPhone — or even better, Apple Watch — to a payment terminal may seem sufficiently incredible, most people I talked to actively avoid Apple Pay, or regularly forget about it. For many people, bringing payments to the phone, even with the added security benefits, just isn't enough.

The merchant of payments

Linda Mantia is the executive vice-president of cards and payment solutions at RBC, and has become a key representative on the future of mobile payment growth in North America. Under her tutelage, RBC launched its Cloud Payments platform. It allowed Canada's largest bank (by user numbers) to move beyond traditional forms of payment credential storage.

RBC is also an issuer of credit cards with partner, Visa. Mantia has helped launch one of Canada's strongest Android-based mobile payment products, utilizing a feature called Host Card Emulation to remove the onus on the customer from having to buy the right secure SIM card with the right phone just to make a payment in a store.

But Mantia says that the mobile payment revolution won't actually begin until Apple Pay arrives in Canada, and she says this knowing it was launched with American Express late last year. Like Americans, Canadians and Australians oversubscribe to credit cards, and most of them are issued by Visa (over 60%) or MasterCard (over 25%). She also acknowledges that mobile payments won't really gain mass adoption until they can be do more than just make secure payments.

Evolving Apple Pay

When we talk about mobile payments, we usually refer to the core feature of what's quickly becoming known as the digital wallet. Like a physical wallet, not everything inside it is intended as a payment output. Most people carry licenses, gift and loyalty cards, photos, receipts, and even cash, all of which is being increasingly digitized and indexed by various startups.

Apple's Wallet, née Passbook, performed some of these functions well before the company launched Apple Pay. Since iOS 6 in 2012, Wallet has been storing boarding passes, loyalty cards and movie tickets, using a variety of techniques, such as GPS coordinates and beacons, to surface them when they're most needed.

Today, loyalty and payments are loosely connected in the Wallet experience. My local grocery store may accept Apply Pay, but my iPhone has no idea that is has a loyalty program. Some loyalty programs are supported by the service, but tighter integration — and automation— is key to ensuring people return to Apple Pay. I've also heard from people that Apple Pay should have a closer tie to the merchants themselves, allowing customers to not only pay within the stores, but redeem coupons and rebates without having to enter third-party apps. While this would be challenging to engineer, a combination of iBeacons, in-store Wi-Fi, and indoor mapping could vastly improve the shopping experience.

But perhaps the most longed-for Apple Pay feature has nothing to do with the physical store. I've heard from so many people that they want a way to more easily send and receive money using iMessage. Moreover, calls for a peer-to-peer Apple Pay API are growing, which would allow developers to integrate bi-directional payments into their apps, using Apple as a secure conduit for transfers.

These features, more than additional locations, is what will really drive the evolution of Apple Pay from a transactional system into a full fledged platform.

What do you want to see Apple Pay turn into? Let us know in the comments below!