Article by Lance Ulanoff
It was, without question, one of Apple’s biggest days on Tuesday: The company unveiled two new larger iPhones, and, with Apple Watch, a bold entry into a new category: wearables.
But it was the third introduction that could ultimately change the most lives: Apple Pay.
Apple Pay is Apple’s mobile payment solution. It uses Apple’s Passbook app, NFC (in the iPhone 6 and 6 Plus), a special authentication chip and Touch ID, the built-in fingerprint reader found in the iPhone 5S and now iPhone 6 and 6 Plus. During the unveiling, Tim Cook showed a short video where a customer fumbled with her credit card and ID, then another short clip where she used a new iPhone 6 to pay with a tap on an NFC reader.
It happened so quickly in the video that Tim Cook jokingly asked if we all wanted to see it again. This was a bit flippant, but
what I noticed was the almost electric excitement in the audience. Attendees realized this could be something special. It could be another instance of competitors stumbling with a technology, and Apple stepping in and showing everyone the way.
“Apple Pay will ignite consumers’ interest in mobile payments by providing a seamless, secure and easy way for consumers to pay both in store and on the go,” says Forrester analyst Denée Carrington.
But the technology isn’t a sure thing. While Tim Cook’s Apple Pay video made credit card payments look difficult, Forrester’s Carrington told me “most consumers find card payments really easy to do,” and that NFC readers “don’t have broad-scale acceptance with most merchants.”
NFC has had a rather long and tortured existence. Its key benefit over competing wireless communication technologies is that the receiver and transmitter need to be within four centimeters of each other to communicate. In other words, it’s virtually impossible to accidentally enact an NFC transaction when your phone is in your pocket and the reader is on the counter.
NFC started showing up in phones in China and France as early as 2006 and in the Nexus S in 2010, but even after Google unveiled Google Wallet in 2011, consumers and partners didn’t flock to the new technology.
As late as April of this year, industry observers were writing about why NFC failed as a mobile payment option.
So why might Apple Pay turn things around?
NFC is not necessary
Apple Pay is a collection of technologies and services designed to enable mobile transactions, so partners can in essence pick and choose what they want to use. In October, Target will enable Touch ID-based payments within its own app.
another key benefit of the Apple Pay solution: it lets merchants choose how to use it. While Target wouldn’t comment on whether NFC-based touch-to-pay would be coming to its stores, the company told me they “constantly evaluate new and evolving payment systems — that includes new in-app mobile payment functionality and investing in MCX (Merchants Customer Exchange) to provide an in-store mobile wallet solution for guests.”
Security
Recently I went to a restaurant where the credit card computer was broken. They were running credit cards through an old-school imprinter, which presses copy paper over the raised letters of the card to create a receipt. When a waiter presented the receipt at a nearby table, the horrified patron grabbed the paper receipts and tore them in half, telling the waiter how incredibly insecure that payment method is and that she preferred to pay in cash.
But handing someone your credit card to scan isn’t much better — especially if the card leaves your sight. Even when it doesn’t, as Target and Home Depot have learned the hard way,
hackers are always looking for ways to undermine the security of swipe and pay systems.
The level of security of any system often relies on how many factors are necessary to confirm that you are who you say you are and the action is one that is intended. For example, two-factor authentication in email might require you to log in with your password on your computer and then enter a second code that arrives on the smartphone you’re holding in your hand.
With Apple Pay, Apple uses its biometric identification to verify that it’s you holding the iPhone 6 and tapping to pay with NFC. There is a third factor — the secure element chip inside the phone — which can help generate a one-time use code for payments.
It’s on an Apple iPhone
Apple sells tens of millions of iPhones each year, but
2014 could prove to be a watershed year as the company finally delivers significantly larger iPhone options. It’s something many iOS devotees have been craving, and even the reason some chose Android phones or phablets over the iPhone.
As a result, I suspect there will be a lot of the Apple Pay-enabled devices in the wild by late 2015. It’s safe to assume that customers who grow accustomed to using Touch ID will want to use tap to pay as well. It could be a mini mobile pay revolution.
Credit cards companies are on board
When Google unveiled Google Wallet in 2011, Visa support was notably absent. Back then credit card companies and banks such as American Express and Wells Fargo were part of a consortium, unfortunately called ISIS, that was building its own mobile payment platform.
Now Amex, MasterCard, Visa, Wells Fargo and others are all part of Apple Pay. Apple says its alliance represents 83% of credit card purchase volume in the U.S. Forrester’s Carrington said they all signed on because Apple Pay is, via the secure element, supporting tokenization. It’s a secure way of creating digital versions of their credit cards within Apple Pay and Apple’s Passbook.
“The card networks have established standards to help promote usage of this to help maintain relevance in this rapidly evolving digital payments space,” said Carrington.
“We said from the beginning that token services would provide great new consumer and merchant experiences,” Visa’s CEO Charlie Scharf wrote in a press release. “You’re seeing it today in our efforts with Apple, and there’s more to come.”
Buying is universal
Of all the things Apple unveiled on Tuesday,
nothing has the potential to be quite as ubiquitous as Apple Pay. The iPhone 6 is surely a mass market product, but there are Android devotees who will never switch and those who aren’t interested in large phones (maybe they’ll buy the iPhone 5s). Apple Watch is an attractive blend of fashion and technology, but consumers have been thus far unmoved by wearable technology.
Apple Pay, though, is different.
We all buy things. From the moment our parents first hand us an allowance, we’re buying stuff. And Tim Cook is right; it can be inconvenient. At any given time, my wallet carries four or five different credit cards. I’m often struggling to remember which one I should use for which activity and have inadvertently charged personal purchases on the corporate card, or vice versa. Rules in Apple Pay or Passbook could surely help avoid that.
I’ve also almost lost credit cards, leaving them on counters or in the back pocket of pants. And I do worry about security. Did that busboy scan my card into a second reader and steal my information? And
why am I entering credit card numbers and the so-called “security code” into fields on a web site?
I have all of these frustrations and fears, yet I will not stop buying stuff. Nor will you. While Apple Pay could be another pothole in the NFC highway, it could also be the mobile payment solution that finally wins.
