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.

Don't Leave Home Without It!

For years the holy grail of radio transmission has been to design a system that could transmit information across vast distances. Recently Visa and several mobile phone manufacturers have been perfecting a technology that is designed to transmit data over distances measured in inches not miles. Dubbed Near–Field Communication or NFC, this technology is being built into many high end smartphones and will allow the user to use the phone as an electronic wallet making purchases with a simple wave of their phone.



According to a press release from Visa, NFC technology passes encrypted information between devices at close range without contact. Instead of swiping a card, shoppers can wave their smartphone near a terminal, effectively turning an NFC enabled phone into a virtual debit or credit card.



Those traveling in Europe, especially the Scandinavian countries, may have already seen this technology in action as these countries have had wireless payment systems for several years. The technology has been slower to be adopted in the US due in part to a much larger population and a more fragmented mobile phone infrastructure.



Of course, the NFC equipped smart phone is only one part of the equation. For the system to be operational and commercially viable there must be a major retrofit of millions of point-of-purchase devices. Vending machines, parking meters, gas pumps and ATMs will need to be NFC equipped. Since many of these devices already are connected to the Internet, part of the task is complete.



As other major credit card companies embrace this new wireless transaction technology, more and more smartphone makers will incorporate NFC chips into the phones and more and more retailers will accept these ePayments. The major credit card providers will continue to support a range of cardholder verification methods, including signature and PIN methods. Chip payments are generally considered to be more secure resulting in a reduction in the payment processor's fraud costs.

So, in the not too distant future, the “Don’t leave home without it” slogan may refer to your phone not your Visacard. Oh wait…they are the same thing!