Apple Pay Gets Some Pushback

A few weeks ago Apple launched its new electronic payment system utilizing the iPhone 6 called ApplePay.  Many consumers and retailers, increasingly concerned about credit card fraud, looked closely at this new way of paying for items.   Apple Pay is promoted as a much more secure method of paying for everyday items and services than traditional credit or debit cards alone.  While your traditional credit card or bank account does indeed get charged for your purchases using Apple Pay, the retailer never actually gets your card number.  For each purchase you make, Apple Pay generates a unique single-use code that your iPhone sends wirelessly to the retailer’s cash register.  That code is used by the retailer to retrieve payment from your account.  Again, this code is only for that specific purchase and does not contain your real credit or debit card account information, password or account number.

When first announced, Apple listed several major stores that would accept Apple Pay and listed as partners most of the major credit card companies and large national banks.  It looked like Apple may have again scored big with another game changing product.

Well, another 800 pound gorilla had yet to weigh in.  Last week Walmart and a few other large national chains have formed a consortium that is pushing another mobile payment system that is not compatible with the Apple system.

I guess it was inevitable that there would be more than one player in the billion dollar electronic payment industry.  Merchants for years have bridled under the charges that the major credit card companies, e.g., American Express, MasterCard and Visa, have levied on customers’ purchases.  Fees of 2 percent or more are customary.  With many big box, high volume stores operating at single digit profit margins, these fees are painful.

Led by Walmart, some large national chains like Best Buy, CVS and Target, are promoting a new mobile service called CurrentC to be launched next year.  It will not use the Near Field technology employed by Apple and some Google payment systems.  Rather it will use QR codes, and more importantly be platform agnostic.  In other words, you won’t need an iPhone.

It is much too early to predict which one of these competitors will win. It may be that both will co-exist.  There may well be one or more other entrants into the fray since billions of dollars are on the line.

If the stores behind CurrentC can establish a new payment system that is not dependent on Visa or MasterCard, that does not require fees paid to these thirds parties and that opens up a trove of consumer behavior information, the Holy Grail of retailing will have been found.

In the end it the consumer will decide.  I remember many years ago when certain retailers and restaurants would only take one credit card.  So if you had a Visa and the store only accepted MasterCard, you were out of luck.  Other than some major events like the Olympics and the Super Bowl, where only one card is honored, most places take most any plastic you can provide.  The same will be true for competing mobile payment systems.  Much to their chagrin, the McDonald’s down the street or the gas station on the corner will have to take your money whatever way you want to give it to them.

Finally We May Have A Real Digital Wallet

Finally We May Have A Real Digital Wallet.

Last week’s much awaited and ballyhooed Apple event announced the upcoming release of a couple must-have gizmos from the folks in Cupertino: the iPhone 6 series and the Apple Watch.  There was a lot of excitement about the new devices offering cool, larger screens and the ability to monitor your best friend’s heartbeat.  Amidst all the buzz, it was easy to miss another part of the announcement, which has the potential to be much more revolutionary than any new hardware tweak.  The company announced Apple Pay, a service that has the potential to change the way we pay for things.

It is true that paying for retail items with a smartphone is not really new.  Using phones to purchase goods and services has been prevalent in some European countries for years, but slow to take off in the USA.  A few companies have embraced the service.  Starbucks’s mobile app is one of the most popular.  You enter your Starbucks Card account number into your phone and it becomes your Starbucks Card.  It is available now at over 7,000 company-operated Starbucks stores nationwide.  To date, there are some movie theatres and other entertainment venues that also accept smart phone payment using.  It remains, however, a novelty embraced by relatively few.

Apple Pay could render the use of physical credit and debit cards as obsolete as pay phones.  With the recent incidents of hacking of credit card information at Home Depot, this new payment method—with its promise of better security—may be coming at a perfect time.  Not only is the Apple Pay technology simple to use, the company announced that it is working with some very heavy hitters in the financial industry. According to the Apple press release, VISA, MasterCard, and American Express are partnering with Apple as are several major banks like Bank of America, CapitalOne, Chase, Citi, and Wells Fargo.

The new iPhone 6 and other new Apple products will use NFC (Near Field Communication) technology that Apple had ignored up until now.  NFC allows you to pay your bill by waving your phone when checking out at a participating retailer.  The payment is made, as is a record of what you bought and when you bought it.  Although your credit or debit card account is still used, the actual account information is never actually transmitted or retained by the retailer.  Would-be digital miscreants would have nothing to hack or steal.

It is reported that Apple Pay will work when released in October at some 200,000 stores in the US.  Among those listed are Macy’s, Subway, Walgreens, and Whole Foods.  If this takes off, other stores will need to accept such payments to stay competitive.

The wholesale adoption of any major new technology requires the alignment of several factors.  In this case, we have an iconic brand, major banks signing on, and an increased desire, from both consumers and retailers, to improve the security of credit/debit card transactions.