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Will Apple Legitimize Mobile Payments?

The company announced its new mobile payments system, Apple Pay, during a news media event Tuesday.

Apple wants to replace the old leather wallet with its digital version. But whether the trendsetting company can kickstart the mobile payments landscape to the next level remains to be seen.

The company revealed its NFC-based Apple Pay network during a much-hyped event Tuesday, which also included the reveals of the new iPhone and the much-anticipated iWatch wearable device.

Apple Pay is built into the iPhone 6 and iPhone 6 Plus and will be available in the US in October. Users can add a credit card from their iTunes account or add a new card by snapping a picture of it with the device's camera. Once the card information is uploaded to Apple Pay, consumers can hold their iPhone in front of a reader that Apple says will be in more than 200,000 retail locations, including Whole Foods, Subway, McDonald's, and Macy's. The purchase will be confirmed with its Touch ID fingerprint scanner.

The new service will utilize tokenization technology to prevent fraud; a one-time code will be generated for each transaction. During the presentation, CEO Tim Cook said card data will not be stored on the phone, and a merchant cashier would not see a user's name or card number.

Sam Maule, senior analyst with Carlisle & Gallagher Consulting Group, said this could be welcome news for retailers, which have been hit with numerous high-profile breaches over the past year. He also called the Apple Pay announcement good news for banks and the traditional payment networks. Apple is working with American Express, MasterCard, Visa, and many banks. In fact, it boasted that Apple Pay has agreements with bank issuers that handle 83% of US credit card purchase volume.

"They're playing within the traditional rails," Maule said. "I think there's a lot of wins for banks with this announcement."

Deborah Baxley, Principal, Cards & Payments at Capgemini Financial Services, said that getting their payment cards onto Apple Pay and other mobile wallets without having to invest in creating their own mobile wallets is another benefit for banks.

"NFC promises to open up whole new world of payments-related innovation including location based services, couponing, loyalty and marketing, which will provide incentive for consumers to start using the mobile wallet," she said.

One bank that is a "preferred partner" for Apple Pay is JPMorgan Chase. This means that Chase merchants can install an Apple Payments software developer kit that can be downloaded by merchants and developers to facilitate payment transactions, Chase said.

Another bank partner, USAA, said Apple Pay marks a "signifciant shift" in the way consumers will pay for goods and services. "This is one of the most radical changes to the payments industry since plastic credit cards, and USAA is committed to being at the forefront of this transformation to make our members' lives easier and more secure," said David Bohne, president of USAA Bank.

Doug Brown, senior vice president of mobile financial Services for FIS of Jacksonville, Fla., said Apple has a chance to succeed in mobile payments where others have failed because it is creating a model that is "less disruptive to the overall payments ecosystem" and has a broader range of acceptance and partnerships with retailers and banks.

Brown also said Apple still has a long way to go before it corners the market on mobile payments. He cited the Merchant Customer Exchange (MCX), the mobile wallet being built by a collection of retailers, as an initiative that's still worth attention. He said Google (with its Android platform) will also likely be a significant player. "I don't think the game is over and the script is written, but this is a milestone in mobile payments."

Maule said the US mobile payment industry is still just in the beginning stages. "But the more Apple can digitize the identity, which is what they have been working on, the more successful they'll be."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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Byurcan
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Byurcan,
User Rank: Author
9/15/2014 | 9:29:41 AM
Re: In the spotlight
That is true, though I'll continue to poke fun at its marketing. I don't see myself adopting any sort of digital wallet, Apple or otherwise, anytime soon, but within ten years it will probably become such the norm that we will all have to use it for convenience sake.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/11/2014 | 2:05:34 PM
Re: Finally!
Exactly! For me, the only payment i make on my phone is through the Starbucks app (that isn't much of a 'landscape').
Nathan Golia
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Nathan Golia,
User Rank: Author
9/11/2014 | 1:50:43 PM
Re: In the spotlight
Apple's market penetration and the ability to push out these new functionalities as firmware updates can't be discounted in its ability to move the zeitgeist. We may poke fun at its marketing or fans, but that legion goes a long way in driving adoption and acceptance of new mobile capabilities.
Kelly22
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Kelly22,
User Rank: Author
9/10/2014 | 1:28:24 PM
Re: In the spotlight
As someone who frequently leaves my apartment without my debit card (or keys, or license), the idea of being able to have credit/debit cards available on my phone is very appealing, especially with these new security measures. Prior to this announcement, I was wary of security issues with mobile payments, but it seems like Apple is taking big steps to protect customers here. 
Somedude8
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Somedude8,
User Rank: Apprentice
9/10/2014 | 11:16:18 AM
Re: Finally!
More than change the mobile landscape, I would even say this creates it, as for most people, there isn't one right now.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/10/2014 | 10:18:12 AM
Re: In the spotlight
Yet another story: Joe Ferra, the long time "Chief Wireless Officer" at Fidelity (he was CWO starting in the late 2000s...well before there were 'smart phones'), used to say that one day we will leave the house with just our keys and phone...everything else will be digital on the phone, including driver's license, auto insurance ID card (Geico has it), and payment options. 

We are almost there! In fact, keys may be the next thing to go digital. According to Apple, the iPhone 6 will work with Starwood Hotels and you can use your phone as your room key. Some newer cars already have a keyless ignition. It won't be long before Apple starts working with the auto manufacturers to have your phone become your car key.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/10/2014 | 10:15:02 AM
Re: In the spotlight
Another story: My wife often leaves the house with her phone and car keys, but she always forgets her wallet (yes, i know, she doesn't have her DL on her...that's another problem!). As a result, she either has to drive back home to get her wallet or have me meet her at whatever store she is at to deliver her wallet. I guess I won't have to do that anymore!!

 
KBurger
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KBurger,
User Rank: Author
9/10/2014 | 9:48:29 AM
Re: In the spotlight
Right, Tim Cook probably is offering up thanks to Home Depot and Target.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/10/2014 | 9:14:55 AM
Re: In the spotlight
I agree. It probably isn't any 'easier' than paying with plastic.

I think the security features are really important here. According to Apple, your card #, name and purchase history aren't shared with the retailer or the bank. The only thing the retailer gets is some sort of Apple transaction # that confirms the payment. So, if this works correctly (and Apple isn't hacked), your card # and personal information is never exposed. That's a big improvement in security, considering the number of retailer breaches we are seeing.
Byurcan
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Byurcan,
User Rank: Author
9/10/2014 | 9:05:26 AM
Re: Finally!
Yes, this may we something those of us in the media or the tech industry have been writing/thinking about, but for many folks this is a new concept
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