Apple Pay: Paving the Way for Mobile Payments
By Dov Cohn, Bronto Software
Behind the glitz and window dressing “wow” factor of Apple’s Sept. 9 iPhone 6/6 Plus and Apple Watch announcements, the meaty Apple Pay announcement was really the star of the show. Apple’s entry into the payment ecosystem is the catalyzing event that will finally propel mobile payments into the mainstream. Apple benefits from years of trial and error by other vendors and has put together a winning solution that will set the standard for mobile contactless payment for the next five years.
Apple Pay, which will be launched in as an update to iOS 8, is a credit card-based payment platform that lets any iPhone user (iPhone 6 and beyond) pay for goods and services at participating retailers by simply placing their phone in front of a small point-of-sale (POS) terminal and pushing the phone’s fingerprint sensing home button. The key pieces of this are the phone’s fingerprint reader, a special Near Field Communication (NFC) chip, and a compatible NFC terminal at the POS. This remarkably simple and Apple-esque action — wave and press — kicks off a well-orchestrated set of technologies that ensure a secure transaction between the merchant and the customer’s chosen credit card.
Apple’s Polish
Apple is not the first company to try to deliver on the mobile wallet promise. Since the early days of mobile, the road has been paved with failed products and companies in this sector. More recently, even Google, with their own Android operating system and billions of dollars available to develop the market, has failed to make Google Wallet relevant. And Square, the darling of mobile commerce with their Square reader, shelved their consumer mobile product, Square Wallet, after just a few months. Others, including the Mobile Customer Exchange (MCX), have been at it for years with little to show for their efforts.
But Apple has the upper hand in this battle for the consumer’s mobile wallet for three key reasons.
1. Simple Elegance
The Apple design ethos of simplicity is front and center in the implementation of Apple Pay. Consumers already have their credit cards on file with Apple. Changing consumer behavior is hard, but Apple has designed a system that is simple, easy to use and doesn’t require consumers to learn — or take — any new actions. In fact, it’s easier than existing payment methods — no magnetic stripe to get going one direction or the other, no coins to deal with. Just wave the phone and press the button. When offering consumers an alternative that is easier than the current method, there is no consideration by the user — the choice to use the solution is a given.
2. All the Pieces
Despite its outward simplicity, the overall system is a very complex integration of hardware, software, credit card issuers, banks and merchants. Apple, however, has managed to orchestrate all the players into a unified solution. First, by owning the entire hardware and software stack on the phone, as well as having credit card credentials for over 500 million users, Apple has full control over the user experience. Like every other Apple product, this one won’t require instructions. It will just work exactly the way the consumer expects it to. It won’t hurt that Apple Pay will come pre-installed and ready to go on every iPhone that ships going forward. And it’s a safe bet that Apple has nailed the implementation piece.
Second, Apple has put together a consortium to give consumers a complete, turnkey solution out of the gate. Visa, MasterCard and American Express are on board. Citi, Capital One, Bank of America and Chase are on board. Walgreen’s, Subway and Macy’s are on board. It’s a star-studded list of partners providing consumers plenty of opportunities to open their mobile wallets with the banks and brands they know and trust.
3. Timing is Everything
The launch of Apple Pay may have been a long time coming, but it was perfectly timed. Looking back, Apple Pay builds on several components Apple has been working on for years. First, and most importantly, over the past seven years they have built up a large and loyal user base of over 500 million iPhone users with credit cards on file. In 2012, Apple released Passbook, which now serves as the basis for your on-device wallet. In 2013 they launched the iPhone 5S with Touch ID — the fingerprint recognition solution that will serve as one of the fundamental security elements. And Apple knew 2015 would be an important transition year for POS systems in the U.S. Starting in October 2015, US merchants will need to have new POS terminals that support more secure Europay, MasterCard and Visa (EMV) smart chip standards or risk being liable for fraud expenses. Many retailers will use the opportunity to upgrade to full NFC-compatible POS systems. Apple is betting on this change over the next few years to drastically increase the number of merchants that will accept NFC payments via Apple Pay.
It will win
Not everyone is so bullish on Apple and their quest to own the wallet. One strong counterpoint is the potential of the Merchant Customer Exchange (MCX). Organized by major retailers in an effort to gain an upper hand on credit card networks and the charges imposed, MCX has backing from retail heavyweights Walmart, Best Buy, 7-11, Gap and others. However, MCX formed over two years ago and has little to show for their efforts amidst a rotating cast of technology partners. Apple has hit the ground running with full cooperation from all sides of the ecosystem with a solution that will be up and running in less than 45 days. MCX has had numerous false starts, and would appear to lack the support of any payment providers.
Others cite the lack of support for Android as a potential downfall. Given the competitive nature of the platforms, Apple Pay is unlikely to make the jump to Android or any other platform, and this will alienate a large segment of smartphone users. But this will not doom Apple Pay. There is still more than enough consumer demand from US iPhone users to make it successful. And in doing so, Apple will succeed in defining the business model and the implementation that Android will eventually adopt.
With the launch of Apple Pay in October, mobile payments are about to get real. Apple put together a complete, elegant solution with the support of the necessary partners and is launching the service at exactly the right time. Retailers should be excited about this new chapter in payment history and the opportunity for mobile, contactless payments to increase consumer loyalty and satisfaction, while reducing fraud and making a positive impact on their bottom line.
Dov Cohn is general manager, mobile solutions, at Bronto Software, which provides a cloud-based marketing platform for organizations to drive revenue through their email, mobile and social campaigns. He can be reached at [email protected].