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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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