Surprise! Apple makes payments play

Surprise! Apple makes payments play

After weeks of rumour, hype and speculation, Apple has made its long-awaited entry into the payments business with a compelling mix of NFC technology, tokenisation, biometrics and must-have mobile form factors, including the new iPhone 6 and forthcoming Apple Watch.

At a star-studded event in Cupertino, California, Apple chief Tim Cook pulled the veil on the company's Apple Pay suite, deriding traditional payments as "broken" and reliant for security on oudated magentic stripes and vulnerable passwords.

In its place, Apple Pay comes complete with an NFC antenna and a dedicated chip - the Secure Element - for storing encrypted and unique 'Device Account Numbers'. "These numbers are never stored on Apple servers," says the tech giant. "And when you make a purchase, the Device Account Number alongside a transaction-specific dynamic security code is used to process your payment. So your actual credit or debit card numbers are never shared with merchants or transmitted with payment."

Credit and debit cards can be easily added to the app using accounts already stored on iTunes, plus the three-digit security code. Alternatively, users can input a new card by taking a snap of it using the phone's onboard camera.

To pay by phone, users simply hold their finger over the Touch ID biometric fingerprint application and tap the device against the retailer's terminal. For the Apple Watch, a double-click payments button and a flip of the wrist near the contactless reader is all that's required. Users must enter a code each time they strap the watch on in order to activate the payments functionality.

Apple has pulled together a formidable array of support for its excursion into the payments industry, with all three major card schemes onboard and top US banks, including Chase, Citi, Bank of America, Capital One and Wells Fargo. Billed as 'coming soon' are Barclays, Navy Federal Credit Union, USAA, PNC and USBank.

"When we review mobile wallet providers, we look for payment safety, quality of service and ease of use for our customers. Apple Pay is a strong offering in those areas and we know our customers want and need this option as they live their increasingly digital lives," says Jim Smith, head of virtual channels for Wells Fargo. "It is our priority to offer innovative technologies to meet our customers where they are - and for many, that's on a mobile device. After all, a wallet may no longer be in your back pocket or purse - it's in the palm of your hand alongside your GPS-enabled maps, camera, music, email, and social networks."

Terms of the arrangement between Apple and the banks have not been made public, but it is understood that Apple is using the improvements in security wrought by biometrics as leverage to get a rebate on card swipe fees.

Apple Pay will be made available for US consumers via a free update to iOS 8 this October.

Comments: (31)

Brett King
Brett King - Moven - New York 10 September, 2014, 02:541 like 1 like

Yeah, the biggest surprise is they didn't announce this 2 years ago...

Vernon Crabtree
Vernon Crabtree - My comments are my own - Utrecht 10 September, 2014, 08:20Be the first to give this comment the thumbs up 0 likes

"deriding traditional payments as "broken" and reliant for security on oudated magentic stripes and vulnerable passwords" - as if Apple is the first to think of a solution for this.  Really!

 

A Finextra member
A Finextra member 10 September, 2014, 09:18Be the first to give this comment the thumbs up 0 likes

"For the Apple Watch, a double-click payments button and a flip of the wrist near the contactless reader is all that's required." - dear god!  Apple style over substance.

Just pay for the dam thing already, stop with this hispter nonsense!

A Finextra member
A Finextra member 10 September, 2014, 10:143 likes 3 likes

Still don't see how banks can benefit by partnering with apple. They are still card issuers. Why should they part away with fraction of interchange to Apple. Are they too scared to think that if they don't jump on bandwagon there won't be any customers left for them? In essence if banks believe that customers would treasure relationship with apple more than their banks , then it's not just end of cards in few years it's end of banks.

A Finextra member
A Finextra member 10 September, 2014, 10:341 like 1 like

Apple COULD disinternediate the Banks so thats why the schemes are clamoring all over Apple.  Do you think the 800m people who have their cards on file think about their bank when making a purchase in iTunes? No, of course not.

And why is think ing about the end of card schemes so hard to imagin?

 

A Finextra member
A Finextra member 10 September, 2014, 10:42Be the first to give this comment the thumbs up 0 likes

I think Tim Cook probably got the wrong advice. The biggest problem for any innovator is that, clunky as they may be payments aren't "broken". Has Apple answered the challenge "its paid for, it works why change?". Is Apple going to reduce costs to merchants (i don't see MCX on his list)? Is he going to Apple is the epitome of "cool" to bank executives so perhaps this will offset all these challenges, at least in places where bank executives shop...

A Finextra member
A Finextra member 10 September, 2014, 10:502 likes 2 likes

Depends what you mean by payments are not broken - card schemes which  - think CNP for mobile transactions and the whole interchange mess - there is room for significant improvement there.

For a consumer I broadly agree, however there is room for improvement.  For the first time there is a very large, very successful, consumer driven huge brand which is not a bank looking to provide a payments solution that has existing financial relationships (cards on file) than any bank.  To think that they wont leverage all those elements and capture significant share is a very dangerous approach.

 

A Finextra member
A Finextra member 10 September, 2014, 11:522 likes 2 likes You missed the point: Apple might not care about interchange at all... Hence, they don't upset the status quo and keep both banks and card networks happy. As for "broken", you need to be the iPhone generation to get it. It's not about "why", but "why not".
A Finextra member
A Finextra member 10 September, 2014, 11:56Be the first to give this comment the thumbs up 0 likes

As I understand Apple do care about interchange. Their business model is based on small fee they will charge issuers who want their cards on Apple pay.

A Finextra member
A Finextra member 10 September, 2014, 12:20Be the first to give this comment the thumbs up 0 likes Small issuance fee has nothing to do with interchange. Also, think how much issuers could agree to pay and how many cards avg. US consumer has. Compare that to the attraction of utility (i.e. selling phones on the basis of strong practical differentiator)...
A Finextra member
A Finextra member 10 September, 2014, 13:411 like 1 like

So all thats needed is...... for the i6 to slowly grow market share, for a sizeable subset of those  i6 users to set up the payment option, for a sizeable subset of the merchant eco system to upgrade their POS infrastructure to accept Apple Pay... These merchants also need to be working on the changes needed for EMV (in the USA)   whilst checking to see what Samsung are doing.  Merchant agreements then need to be amended to make sure Apple get paid by the merchants through the acquiring bank operators of the broken payment systems,   Then.... one of the tooled up i6 customers has to find an enabled merchant, press his pay button twice, shake his wrist at the merchant and then hopefully get his sale approved... alternatively the merchant might take exception to what could be construed as an insulting gesture - and throw him or her out!  Lets see how this goes... i remain (anonymously) to be convinced....   Brit.

Brett King
Brett King - Moven - New York 10 September, 2014, 13:582 likes 2 likes

Regardless of the payments aren't broken mantra here - Apple will result in mass adoption of mobile payments and that, my friends, is the kicker. 

A Finextra member
A Finextra member 10 September, 2014, 14:011 like 1 like

Only by those who have an Apple product or like Apple enough to buy their product.

It offers nothing exciting to those who are happy with Andriod enabled devices, or happy to pay with card, cash, or goats...

It's another way of paying, but if there are too many menthods it will be the merchants who will cry "ENOUGH" and only accept cards/cash.  Everyone has a payment card/coins not everyone has an iPhone (and not everyone will).

João Bohner
João Bohner - Independent Consultant - Carapicuiba 10 September, 2014, 14:10Be the first to give this comment the thumbs up 0 likes

The simplest thing Apple has to do now is get a 'Banking License' buy my Enterprise Architecture "Bank of the Future" and function as a bank, without the legacy of the 'entangled Core Systems'.
The iBank will be extremely agile, flexible and, most importantly, at least ten times cheaper than current Banks (not 10%).
Apple may start with its Treasury Department.

A Finextra member
A Finextra member 10 September, 2014, 14:14Be the first to give this comment the thumbs up 0 likes

"Why not" Alexander? Because i haven't got an i-phone 6, and neither is my merchant motivated to buy the gubbins to accept this stuff. I'm sure the Apple shop will though:-)

A Finextra member
A Finextra member 10 September, 2014, 14:21Be the first to give this comment the thumbs up 0 likes

Lets see shall we.....  I saw similar arguments when Google wallet hit the streets -  it died outside its own home turf....  Apple just got a knock when Celebs found photos of their Jiggly bits  were not very well protected in the Cloud - that stuff knocks consumer confidence...  Will merchants be interested in running round after the small population subset who have apple pay?  remains to be seen

Brit

A Finextra member
A Finextra member 10 September, 2014, 14:22Be the first to give this comment the thumbs up 0 likes

Brett - you may be wrong?

 

Brit

Brett King
Brett King - Moven - New York 10 September, 2014, 14:233 likes 3 likes

When technologies like this get rolled out by a dominant player like Apple, the adoption cycle from early to late adopters traditionally compresses. There is clear statistical trends for an overall shift in technology adoption in any case, with smartphone being a good indicator.

The fact of the matter is that within 2-3 years more people will be making mobile payments at the POS than any other payment method in most developed economies.

Those who herald the ubiquity of cash and cards as they stand, are the same that probably were surprised when the Kindle and iTunes rapidly overtook physical books and music sales.

The reality is this is inevitable based on consumer behavior trends. What Apple's move dictates is that NFC + Tokenization is the accepted standard moving forward, so that Merchants have clarity. That is a good thing. Tokenization will be embraced because of the better depth of identity as compared with just a PAN.

This is safer, more secure and opens up a whole lot of other informational value adds before and after the transaction that plastic and cash can never provide. In the end it is the data-based value ecosystem and improved experiences this will create wrapped around the payment that will spur this on.

Any other expectations is simply refusing to believe that consumers are net adopters of new technology, and that would be a position based on zero data/logic. 

A Finextra member
A Finextra member 10 September, 2014, 14:27Be the first to give this comment the thumbs up 0 likes

Based on Google wallet?   that was a game changer (not)  in the developing world many people make payments with mobile - without Apple.. lets not emulate pavlovs dogs here... Apples bell has stopped making mouths water recently... history is littered with payment solutions that died because they didnt have ubiquity... apple does not have ubiquity all the time that samsung, and a few other die hards hang in there.  Until then, merchants will resist.... Will Starbucks embrace Apple Pay???????? and cannibalise?   thats gonna be interesting

Brit

A Finextra member
A Finextra member 10 September, 2014, 14:29Be the first to give this comment the thumbs up 0 likes

Both iTunes and Kindle offer something unique; a chance to have ALL music/books in one place, meaning space and your shoulder is saved from lugging around heavy books and CDs.

Personally - iTunes yes, Kindle no - prefer good old fashioned books me self.

Apple NFC is just another way of paying, trying to keep themselves relevant in a world of competing markets.

Vernon Crabtree
Vernon Crabtree - My comments are my own - Utrecht 10 September, 2014, 14:402 likes 2 likes

There are some schools who use iPads for class matarial.  They insist that you use Apple to attend their school.

I don't consider this to be education.  This is brain washing.  I object to the idea that I have to use product X to do function Y.

If Apple has truly embraced the open NFC payment model via the card schemes (and to connect the merchants to the account holders they surely must do this) then it can only be a good thing.

At least now I understand the recent urgency of tokenisation being mandated by the card schemes.

So while the adoption of new payment methods by a popular brand is good, I hope Apple falls back into the niche market where it belongs.  Please stop brainwashing us that everything Apple is the only way to do things.

 

A Finextra member
A Finextra member 10 September, 2014, 15:051 like 1 like

Interesting to see that a day after the Apple Pay announcement, we are having the same discussion as with music when iTunes started selling it.  

Sure, Apple is not reducing merchant fees.  Sure, for the banks this is not fundamentally different from paying with a credit card.  Sure, why should credit card processors pay part of their fees to Apple?

Has Apple totally lost it?

What Apple is doing here is what they do best: turn existing ideas and technologies into mass use. I have been talking about NFC with customers and on conferences for years.  And in 1 year my dad will use it.  He won't even know what NFC is.  Is Apple a big bad wolf because they steal other people's ideas?  Tough luck.  

Another major innovation: for the customer, the iPhone has just become one payment channel to customers.  Why choose between Paywave, PingIt, PayPal, Zapp and a gazillion other bank's options.  

Ubiquity is key here.  In the US, everyone has either a Visa, Amex or Mastercard.  Check.  With Bank of America, CapOne, Chase, Citi, Wells, Barclays, PNC, USAA, US Bank, a very large bank constituency is covered. Check.  Accepted in 220,000 stores.  That's not nearly enough.  This is day 2.

It will take some time, but iTunes has all the promise to grab mobile payments and transform it by making other's ideas and technologies ubiquitous.

Hey, the Beatles made it to the iTunes music library as well, didn't they?

The views expressed on this blog are my own and do not necessarily reflect the views of Oracle.

A Finextra member
A Finextra member 10 September, 2014, 18:352 likes 2 likes

Brit/Anon,

Let me be blunt (don't confuse that with rudeness, please :)). Are you regular FB users? Does FB gives a f###?! Why not?... Does its $200bn valuation depend on YOU?.. Get it?..

Same with Apple... They don't need every Tom, Dick & Harry. Their market share in the US is just over 40% - but that's enough to influence (in a BIG way) the remaining 60%. And to make billions in profit...

Did anybody force people to listen to music via iTunes/iPod? No. CDs (and even LPs) are still around; plus other choices (I like Spotify, for example). Does that define the music industry? No...

ApplePay is not proprietary - it uses open "plain vanilla" contactless EMV protocol. That's why there is no risk for retailer at all. (I don't know how exactly tokenized payment is routed, but my guess is iPhone presents some unique BIN which goes to the corresponding network who them get card data from Apple and pass it on in the normal way.) E-commerce is different (i.e. is proprietary), but integration cost with ApplePay is negligible. And "Apple logo" Pay is so much cooler than, say, Zapp...

Apple doesn't care whether all people who commented here use ApplePay or not. The time will come... In the meantime, they will make zillions selling iPhone 6 and Apple Watch. Samsung et al can only watch in awe.

P.S. What do you have to hide, btw?..

A Finextra member
A Finextra member 11 September, 2014, 04:29Be the first to give this comment the thumbs up 0 likes

Any views on if PIN's are still required for transactions over the contactless limit? I'm assuming they must be but no mention in any commentry I have seen.

From the card scheme point of view teaming up with Apple is forcing issuers to use thir tokenization services which will carry fees to the issuers and maybe acquirers as well. So a new revenue stream for the card schemes.

Lastly "cardholder not present" seems to be a developing concept with the card schemes rather than "card not present". The token ia a representation the physical card but the cardholder is not present, maybe this is a move to facilitate lower interchange in the eCommerce world. Any views?

Brett King
Brett King - Moven - New York 11 September, 2014, 04:482 likes 2 likes

In the US there is no accepted consensus on PIN yet (in fact signature interchange is a third of PIN Tx), which is why Apple negotiated the use of iTouch/SE/Tokens versus PIN. However, they also agreed to accept some level of risk with that, and in return they got a new interchange rate equivalent of 'cardholder present' rate instead of CNP/CP 

A Finextra member
A Finextra member 11 September, 2014, 07:46Be the first to give this comment the thumbs up 0 likes If BK is right, card networks will have to offer the same rate (and terms) to other biometric solutions (e.g. Samsung) or face lawsuits... Finally the market will get to understand the value of h/w vs pure s/w.
Nihat R Erdem
Nihat R Erdem - T.C.Ziraat Bankasi A.S. - Ankara 11 September, 2014, 08:11Be the first to give this comment the thumbs up 0 likes

Steve Jobs has taken away his vision and innovation with him. Tim's Apple is a follower, using the mass created by Steve. All the technologies that came with Apple Pay, Apple Watch and iPhone6 (thank God they didn't rename it as Apple Phone) are late adopted technologies. NFC, wallet and tokenization are all things that we already use in some way. Therefore nobody was shocked when Apple 'unveiled' the so called surprise.

Those, who take the launch of iTunes as a model, miss the fact about the status of the music industry in those days, suffering from illegal downloads. They were about to die. The industry was desparately seeking a way out.  It is not the same for the payments industry. There are so many channels and players in the payments field, which they must compete with. On the other hand Apple Pay's success relies too much on vital external factors, like banks and card issuers accepting to join and merchants accepting to change their POS.

It is clear that Apple will lower the fees for payments, that is how Apple works. But the technology is too expensive. This is like buying a hydrogen car to save fuel. Yes it is consuming less $/miles, but you have to pay a lot more to buy the car itself. 

A Finextra member
A Finextra member 11 September, 2014, 14:41Be the first to give this comment the thumbs up 0 likes

Alex- you miss the point methinks...... we comment here because its a way of recording our predictions....  similar hype surrounded google wallet - FDC guys and Juniper hyped it.... i was a naysayer, it was fun, this is fun,,,,   we know that Closed loop payments work (amazon/itunes/paypal-ebay,Starbucks etc)   do you think i care about FB's valuation? its irrelevant.. Do i questoin why you compare content and delivery to payments (fundamentally different) i like costa and pay with cash not Starbucks and my Iphone..... this is about experience and prediction, intellect and application.  This is not about 'ME' or my Facebook habits (so last year -twitter now my dear)  its about a social network,(finextra) community and our ability to interact to discuss and predict thebehaviour of paying populations.... if i am wrong - i will have learned,  If you are right you earn double plus points in the bloggosphere,  at the end of the day its just pixels on a screen... nothing to get  wound up over ;-)   Brit

John Candido
John Candido - Black Cabs - Melbourne 13 September, 2014, 11:15Be the first to give this comment the thumbs up 0 likes

In ten years' time Apple Pay will have been well established globally. The effect of this assumption is that cashless, mobile, plastic-less, frictionless, and contactless payments will be ubiquitous. It is a reasonable prospect that Apple knows what it is doing in order to get Apple Pay established pretty well globally. Given these assumptions, we will look at iPhone 6 with its inbuilt NFC capacity as an important catalyst towards a future cashless society. 

A Finextra member
A Finextra member 15 September, 2014, 12:19Be the first to give this comment the thumbs up 0 likes

This is an interesting summary diagnosis on Apple Pay in the USA,  views I broadly agree with  http://www.inc.com/maria-aspan/the-case-against-apple-pay.html

My son decided he didnt want a smart watch for christmas after all....  he wants a better console..... not a bad choice in my view...

I tried looking at my watch for a minute, made my arm ache.  I think i will stick with apps on phones and time on my wrist.

Apple are great, i love their product range (to date)... I thought they  were staying out of Payments (other than ITunes) demonstrating that they were alert to the difficulties of promulgating a new payments brand.  Clearly they think they can crack it. it will make an interesting diversion.  Brit

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