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My thoughts on Apple Pay

So now that I’ve had a day or so to digest the recent announcement by Apple regarding “Apple Pay”, here are some of my thoughts:

  • My first thought was:  after coming late to the party, and having all this time to think about how they can add value, solve problems, and streamline m-commerce – this was the best they could come up with?  Just … pay?  Payment isn’t broken, and everyone can easily pay today – no one is screaming out for new technology to pay.
  • I was amused to see an article on CNBC which began:  “The tech industry has been planning for years a world where shoppers use their phones for most shopping, and analysts believe Apple’s new payments system could finally make mass adoption a reality.”   Two problems with this:
  1. Consumers won’t be using iPhones for SHOPPING … they can only use them for PAYING.  There’s a big difference.
  2. Are you kidding me with “mass adoption”?  Apple Pay will only work with iPhone 6 – whose current market share is: 0%  As a whole, iOS only represents 11.7% of worldwide smartphone sales (Q2-2014, according to IDC).  Why would any merchant in their right mind invest in a system that will only be able to serve a tiny minority of consumers? 
  • The real problems that need solving lie in other areas of the commercial value chain – that surround payment – not the payment itself.  Mobile technology is ideal for streamlining such pre-payment events such as Target Marketing, Electronic Coupons/Vouchers, and Virtual Shopping … and post-payment events like Loyalty Management.  Apple ignored all of that, and created a solution for a problem that doesn’t exist.

 

  • In order for mobile commerce to achieve mass adoption – whether it be for payment or other more valuable merchant/consumer interactions – solutions must be agnostic across the spectrum:  Funding Source agnostic (you can use any credit/debit card or bank account … even stored value);  OS agnostic (something for iOS only will never achieve mass adoption);  Trigger agnostic (you need more than just NFC for true omni-channel commerce); and Merchant agnostic (any retailer should be able to adopt the technology without any infrastructure upgrades, using existing merchant account bank relationships).

And don’t even get me started on U.S. domestic-only vs. global focus…  All in all, a real disappointment from Apple - who were once a truly revolutionary company.

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Comments: (11)

A Finextra member
A Finextra member 11 September, 2014, 15:272 likes 2 likes

And another thing ... if Apple can't keep Jennifer Lawrence's naked photos secure in iCloud, I'm not so sure people are going to trust them with their credit card and banking details...

Martin Cox
Martin Cox - Rambus - Rotterdam 12 September, 2014, 01:161 like 1 like

David, in response to your question: "Why would any merchant in their right mind invest in a system that will only be able to serve a tiny minority of consumers?"

I agree, they'd be crazy. That's why Apple has gone down the EMV NFC path.

Any retailer who adds a contactless EMV terminal can accept Apple Pay and any other mobile solution using EMV/NFC such as all of the Android HCE solutions that we'll see in market soon.

Oh. and all of the millions of contactless EMV cards that much of the rest of the world is already using.

Not such a "tiny minority" I'd say.

 

Paul Vieros
Paul Vieros - Real ID - Melbourne 12 September, 2014, 05:05Be the first to give this comment the thumbs up 0 likes

I think Apple see the writing on the wall and while there was some measure of fanfare, it looks like a product that will work seamlessly and may be easier for Banks to roll out. Keep in mind that it's gone down the tokenization path, this will be great for merchants trying hard to implement/maintain PCI.  

James Piggot
James Piggot - Finastra - London 12 September, 2014, 10:181 like 1 like

This is not about Apple leading the pack, they resisted NFC for years. The fact they are now adopting this technology shows it is gaining traction and is an endorsement of the approach that others have developed.

There are plenty who are ahead of Apple, banks in NZ, Australia, Spain have already adopted the same technology and are seeing good rates of adoption. MasterCard has recently mandated all merchants must switch to contactless ready POS terminals by 2020 and Visa has begun tokenisation roll out in the US. The potential advantages are so huge and the risks of being left behind are so high this is an unstoppable train for the card processors and banks and tech companies.

What remains to be seen is how resistant consumers are to the new technology, there will be concerns about security around handing personal financial information to the likes of Google and Apple but the advantages and convenience will surely outweigh those concerns.

The magnetic strip is on its way out and once contactless terminals are everywhere you will be able to pay by card or mobile. The card experience will be no different but the mobile experience will become more and more compelling, geolocation of payments, electronic receipt stored with the payment, biometric security and so on.  The huge ecosystem of Android and Apple app developers will dream up functionality that we cannot even imagine ourselves right now.

 

A Finextra member
A Finextra member 13 September, 2014, 14:35Be the first to give this comment the thumbs up 0 likes

There hasn't been the large adoption of paying with NFC (contactless).  The issue was merchants didn't want to upgrade to terminals that would support it until they saw the need.  Consumers didn't see the advantage of using it (if they could) because they never saw anywhere to use it.

With all merchants updating their terminals to meet the October 2015 EMV requirement, most will also support NFC.  So, one side of the equation is now resolved.

As more people upgrade to the new Iphone and try out the new features, I think most will give it a try.  Even Android phone users will probably see an uptick in use as they see Iphone people using it.

There are definitely a large group of users who may forget their keys or wallet but never forget their phone.

Stephen Hanlon
Stephen Hanlon - Sentient International - Dubai 14 September, 2014, 14:00Be the first to give this comment the thumbs up 0 likes

Also, not to be overlooked is that a SmartPhone card emulation offers numerous ways to carry out cardholder verification that an NFC-enabled card does not.  This offers the opportunity to remove limits on NFC transactions.

Because offline PIN is standard practice in Europe, there is no cardholder verification for an NFC-enabled card transaction, so transactions were typically limited to €20.  SmartPhones offer the opportunity to avoid this limitation.

A Finextra member
A Finextra member 14 September, 2014, 18:34Be the first to give this comment the thumbs up 0 likes

Firstly, I think David is 100% right. Apple Pay seems as disappointing as Google Wallet at this rate.

Martin - I think you may be misleading the discussion by introducing EMV NFC.

By simple definition EMV prevents counterfeit fraud because the EMV card is issued with cryptographic keys that can be verified by Visa/MasterCard and the Bank-card Issuer.

Then how could the EMV Bank-card Issuer in their right mind, authorize a transaction from an iPhone user that simply took a photo of a card (not necessarily their own) to add it to their Apple Pay wallet, without then defeating the whole point of EMV?

It follows, that EMV NFC would then kill the ‘generic wallet’ market - if it wasn’t dead already : )  and by implication only bank issued Wallets would survive. 

In any event, contactless (NFC) EMV is a bit of a dog because the hand-shake with the terminal takes as long as contact EMV so what’s the point? Plus like Stephen eludes to, below X limit being without PIN means cards can be ‘milked’ or users must keep them in a NFC shielded wallet only to take them out when needed - so what’s the point, squared.

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 September, 2014, 09:05Be the first to give this comment the thumbs up 0 likes

@CraigK: Good point about "Then how could the EMV Bank-card Issuer ... authorize a transaction from an iPhone user that simply took a photo of a card (not necessarily their own)...". Your question would sound even more ominous when we learn from Apple's website that users can "simply type" card details "manually" to add new cards to Apple Pay (http://www.apple.com/iphone-6/apple-pay/). In other words, you don't even need to have somebody else's card to snap a picture of it!

A Finextra member
A Finextra member 15 September, 2014, 10:511 like 1 like

What Stephen Hanlon says is a very important point, and one of the reasons why mobile technology is such a good solution for combatting credit card fraud - both offline and online.  With mobile, dual-factor authentication can be employed where your mobile wallet can be linked with only a single handset.  Add password/pin protection, and you have dual authentication: something you HAVE (must have the phone), and something you KNOW (the pin/password).  Then you can remove the silly NFC transaction limits.

Using mobile, apps can be trigger-agnostic: QR-code, NFC, audio tag, Bluetooth beacons ... whichever the merchant wants to adopt.

I firmly believe, though, than in order for m-commerce to achieve real scale the solutions must work across all (or most) mobile platforms.  Apple is being Apple, trying to play within their own little ecosystem - which worked fine for iTunes, but won't for m-commerce.

John Gessau
John Gessau - ACI Worldwide - Johannesburg 15 September, 2014, 11:341 like 1 like

Whether you think they've been smart in holding out until now with NFC, or too slow and now lucky (what with HCE, contactless rollout in the US, etc) is almost a moot point. Sure there are lots of ways to build security around a payment, but without ubiquitous acceptance, it will always be limited. NFC is a good horse to bet on right now.

What is more interesting in their play is the very deliberate move to stay away from the purchasing data. This has won friends and will foster participation - we've already seen significantly more of that than with either the Google Wallet or Softcard. And friends will create apps to add to the overall wallet value and experience. Don't forget that Apple is not defined as a payments company; they have to act with some caution.

A good move, in my opinion. A good first step, should I say; there will be more to come.

Martin Cox
Martin Cox - Rambus - Rotterdam 16 September, 2014, 01:501 like 1 like

Craig and Ketharaman, I'm a little confused by your reactions. I'm not privy to the fine detail and don't work for Apple, a card scheme or any of the involved banks but I think it's pretty clear from the publically available information that the transaction at the POS is an EMV transaction using an EMV cryptogram to secure it. The difference here is that this cryptogram is created using a random number and the replacement PAN that is provided by the scheme tokenisation services to ensure that it's good for one transaction only and can be identified as a mobile transaction.

The PAN entry (or picture) is merely part of the enrollment procedure and doesn't imply (to me) that the transaction is not EMV.

This article explains it reasonably well: http://bankinnovation.net/2014/09/heres-how-the-security-behind-apple-pay-will-really-work/