Robert McCarthy
Editor’s note: Robert McCarthy has designed, developed, researched and evangelized mobile products and technologies, with a focus on mobile and emerging payment eco-systems, for more than 15 years. At Mobiquity, Robert advises clients in areas including mobile communications, network and mobile security, and cloud infrastructure design.
A song lyric from “All That Jazz” comes to mind following Apple’s big announcement about mobile payments on Tuesday: “Everything old is new again.” Amid rumors and leaks surrounding the new Apple phone, operating system and peripherals, Apple clearly saw – and took advantage of – the looming perfect storm in mobile payments that’s been swirling and growling on the horizon for the last few years.
It is now clear: Apple is taking advantage of partnerships more than technology in order to innovate in this burgeoning space.
Apple has been focused on delivering some intriguing solutions to problems on the periphery of mobile payments for the last few years, but none (until now) that has captured a major portion of the in-store mobile payments experience.
iTunes, of course, is at the center of it all as the main portal for Apple users to pay for digital content from any preferred platform. Passbook, released in 2012, has capabilities that support non-payment activities – managing tickets, coupons, events and code scanning – but never truly came through as the hoped-for “Apple mobile wallet” for payments.
The iBeacon ecosystem is enabling brick-and-mortar retailers to have more insightful digital conversations with their customers, but has yet to prove its value as a vehicle for higher revenues per consumer. Even Apple’s latest security measure, the Touch ID fingerprint scanner with wide-sweeping possibilities, had proven most practical only for device unlocking and little else.
Now with iPhone 6 and Apple Pay, these pieces finally come together.
As Apple rolls out the iPhone 6 with iOS 8 and Apple Pay, users will have a whole new world of NFC-enabled secure payment capabilities open to them. The iPhone leverages a secure element (SE) inside the chip to store sensitive data, can on-board new credit cards via the device’s camera, and uses tokenization to protect real credit card data when it is “in flight,” traversing the various networks within the payment ecosystem.
But the true innovation here for Apple was in recognizing that the eco-system – technology, partners, merchants and consumers – was nearly in place and simply needed a leader to bring it all together.
Coupled with this announcement is the timing of the EMV (Europay, MasterCard and Visa) mandates set forth by card brands that requires retailers to switch their existing payment devices for new hardware capable of supporting EMV payments. EMV, the standard in almost all other countries, is a more secure standard for processing credit card payments that makes use of an embedded chip on the credit card to securely encrypt transactions. All retailers must swap their hardware for EMV-capable hardware by the end of 2015 or suffer a huge leap in fraud liability, a burden the card brands are no longer willing to bear.
This, of course, is why Apple has partnered with major card brands (AMEX, Visa and Mastercard); in addition, they have partnered with eight of the top eight credit issuers and over 200,000 merchants. For these payment entities, a partnership like this ensures an increased opportunity for customer acquisition directly through Apple while staving off encroachment by other payment devices (such as crypto-currency).
For Apple, these partnerships ensure that they can readily connect the traditional retail payment rails to the iTunes backend, thus locking in their user base to ensure its more than 800+ million registered customers can securely and seamlessly allow the retailer to process a payment using the iPhone 6 credentials and an Apple iTunes account.
Over the next 1-3 years, you can expect:
- iPhone 6 becomes the payment vehicle for 2015 and beyond;
- Passbook transitions into a tool for Apple Pay storage and becomes an NFC-enabled digital powerhouse;
- iTunes becomes the instant in-store credit card vault for 800+M customers and the clearinghouse for mobile transactions and receipts, regardless of credit card used;
- iBeacons, in conjunction with iOS8′s new interactive notifications, provides an enhanced, contextual user payment experience, with smart menus driving purchase options directly from the iPhone 6; and
- Touch ID (along with Secure Element), enabled for access by third-party apps, becomes the key to securely unlock new payment transactions as well as open up opportunities for developers to harness that security for exciting new apps.
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