If you get them by the wallet, their hearts and minds will follow – but they’ll have to buy a new mobile phone first.
That appears to be the mission of Apple Inc., which wants shoppers to leave their wallets at home and make purchases with the newly-debuted iPhone 6, specifically using Apple Pay, heralded as a big advance for mobile payments at point of sale (POS). But whether Apple can count on the must-have popularity of successive versions of the iPhone to de-Balkanize the current mobile payments system is still not clear. The consumer demand for iPhones is one thing, but the tipping point is still up for grabs.
The CFPB weighed in on Sept. 11 with a caution that regulation needs to keep up with the innovations in mobile banking. That same day, bank consultant Aite Group cautioned that security safeguards that work well online are not always as effective in the mobile sphere. Tech support for many mobile devices is finite, and users’ unsupported devices can fall prey to botnets, Aite cautioned.
It would appear that the iPhone 6 will be an attractive method of mobile payment, due in part to the ingrained security protections that come with Apple Pay. This coming October, Apple said, iPhone 6 owners who use Apple Pay will be able to purchase with a tap of the phone, rather than swiping their mag-strip credit cards through a reader. They’ll be able to tap and pay at 220,000 U.S. locations, many of them big-name retailers (but not WalMart, which is developing its own payment system). Users won’t have to give a PIN or a password – just a fingerprint, to authorize a POS purchase.
The Apple Pay system relies on Near Field Communication (NFC) and uses a cryptogram and a token (generated by card issuers, not Apple, which removes Apple from the payment process). The token looks like a traditional credit card number, but it is generated per transaction and is stored on a secure chip within the iPhone. The process requires a series of decryptions.
Only 3 percent of merchants reportedly now use NFC, which costs between $250 and $300 per unit at checkout, but by October 2015, merchants will have to update to EMV technology, which uses NFC, so Apple’s reputation as a game-changer is getting a bit of a regulatory push. In the meantime, whether the company can win customers over with successive upgrades of the iPhone hasn’t been established – there are many different options in the mobile payment system at the moment.
BankInnovation reports that Apple has been preparing a merchant pilot program and has been courting smaller loyalty programs as potential acquisitions.
Who gets to decide? Usually, issuers and merchants do. But Apple is offering many enticements, such as iTunes media, for customers who shop at its merchant partners. It has yet to reach that critical tipping point.
