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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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KBurger
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KBurger,
User Rank: Author
9/9/2014 | 8:49:38 PM
In the spotlight
Apple has advantages and disadvantages that other mobile payments/wallets players don't have. On the one hand, Apple Pay probably has gotten more publicity and coverage in one day than MCX, Softcard (formerly Isis) and other m-payment schemes have gotten in 2 years. There Apple fans who will want to try out Apple Pay just because it's the latest & greatest from Apple. There's an instant cool factor. On the other hand, there will be tremendous scrutiny that the other m-payments players don't have. If there are glitches, they will be covered as intensively. What would be considered a bump in the road for other players will be considered a major screw-up by Apple. So maybe it will be similar to what we've seen with smartphones and tablets. Apple paves the way, dominates the market and then over time as customers learn they are more open to the alternatives.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/10/2014 | 6:34:25 AM
Finally!
I do think this will change the mobile payments landscape. And that change started yesterday. While we "live" in a world where we talk about mobile payments, mobile payments adoption and we live for news like this, most iPhone users don't. In fact, believe it or not, many never even considered using their phone to make a payment.

A little story: at back to school night yesterday, I was chatting with another parent about the Apple announcement. When we started talking about Apple Pay, the 2 other people in our conversation started asking all sorts of questions...."really? that would be so cool!" "I can't wait to try it." "I never thought about the phone that way." These weren't 2 Luddite flip phone users...both had iPhones.

The point is: Apple changed the conversation yesterday. And that was just with a press conference. Wait until the phones comes out.

 
Byurcan
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Byurcan,
User Rank: Author
9/10/2014 | 9:02:00 AM
Re: In the spotlight
You are right, many more people will adopt Apple Pay than other m-wallets simply because so many people jump on board whatever the latest Apple thing is and it gets so much hype. Most people in this country never heard of Isis until they had to change their name to avoid association with the militant group.

But ultimately, it will suceed or not whether it answers the ages-old question of if digital wallets are that much more suprior to the way we pay today to make enough people switch. There was a video during the presentation that was supposed to show how clumsy it is to pay with a regular card' Apple was trying to make it seem like paying with a card was like solving an algebra problem. But really, it's not that inconvenient. Digital wallets must opffer something more than just a cool new way to make a payment.
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
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.
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 | 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!!

 
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.
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.
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. 
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